Reference no: EM132830570

Estimating Bad Dets Keegan Co. Accounting records disclosed the following information for 2019

Cash Sales $900,000

Net Credt Rece $750,000

Account receivable(12/31/2019) $160,000

Alloweance for doubtful account(12/31/2019, prior to adjustment) $1,500(debit)

Keegan wishes to examine the effect of various alternative bad debt estimation policies.

Required:

Problem 1. Prepare the adjusting entry that would be required under each of the following methods: a. Bad debts are estimated at 3% of net credit sales. b. Bad debts are estimated at 7.5% of gross accounts receivable. c. An aging of accounts receivable indicates that half of the outstanding accounts will incur a 3% loss, a quar-ter will incur a 6% loss, the remaining quarter will incur a 20% loss.

Problem 2. Next Level Discuss the difference between the income statement and balance sheet approaches to estimating bad debts.