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allowance method of accounting for bad debts comparison of the t 255044

Allowance Method of Accounting for Bad Debts—Comparison of the Two Approaches Kandel Company had the following data available for 2010 (before making any adjustments):

Accounts receivable, 12/31/10 ………………………………$320,100

Allowance for doubtful accounts ………………………………..2,600

Net credit sales, 2010 …………………………………………834,000

Required

1. Identify and analyze the adjustment to recognize bad debts under the following assumptions:

(a) Bad debts expense is expected to be 2% of net credit sales for the year and

(b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.

2. Assume instead that the balance in the allowance account is a negative $2,600. How will this affect your answers to (1)?

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