Reference no: EM133058247

Question - Colts Ltd.'s unadjusted trial balance as of December 31, 2021, included the following:

Debit Credit

Accounts receivable $280,000

Allowance for doubtful accounts $890

Credit sales 625,000

Sales returns and allowances 25,000

Required -

1) Calculate the estimated amounts of bad debts if assumptions used are: a) 4% of gross accounts receivable, and b) 1.5% of net credit sales.

2) In each of the cases above, present partial Statements of financial position, showing Gross Accounts Receivable, Allowance of Doubtful account and Net Accounts Receivable Colts' financial reporting objective is to maximize the before-tax operating income. Given the two choices to estimate the bad debts, which method would you recommend to the management team? Justify your recommendation.