Reference no: EM132833175

Your audit client, Karen Corporation, provided for uncollectible accounts receivable under the allowance method since the start of its operations last December 31, 2018. Provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Karen Corporation usual credit terms are net 30 days. The credit balance in the allowance for doubtful accounts was P260,000 at January l, 2018. During 2018, credit sales totaled Pl8,000,000, interim provisions for doubtful accounts were made at 2 percent of credit sales, Pl80,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P30,000. Karen installed a computer system in November 2018 and an aging of accounts receivable was prepared for the first time as of December 31, 2018.

A summary of the aging is as follows:

Classifications by Month of Sale               Balance in Each Category             Estimated %Uncollectible
November-December 2018                         P 2,280,000                                    2%
July-October 2018                             1,200,000                                                 15%
January-June 2018                          800,000                                                  25%
Prior to January 1, 2018                      260,000                                                        80%

Based on the review of collectibility of the account balances in the "prior to January 1, 2018" aging category, additional receivables totaling P120,000 were written off as of December 31, 2018. Effective with the year ended December 31, 2018, Karen adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Based on the above and the result of your audit, answer the following:

Problem 1: How much is the adjusted balance of the allowance for doubtful accounts as of December 31, 2018?

Problem 2: How much is the doubtful accounts for the year 2018?

Problem 3: The recorded allowance for doubtful accounts should be increased by how much?