Estimating Bad Debts Keegan Corporation’s accounting records disclosed the following information for 2019: Cash sales $850,000 Net credit sales $720,000 Accounts receivable (12/31/2019) $160,000 Allowance for doubtful accounts (12/31/2019, prior to adjustment) $1,500 (debit) Keegan wishes to examine the effect of various alternative bad debt estimation policies. Required: 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. 2. Discuss the difference between the income statement and balance sheet approaches to estimating bad debts.
Estimating
Cash sales $850,000
Net credit sales $720,000
Allowance for doubtful accounts (12/31/2019, prior to adjustment) $1,500 (debit)
Keegan wishes to examine the effect of various alternative bad debt estimation policies.
Required: 1. Prepare the
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.
2. Discuss the difference between the income statement and
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