Ontario Company is involved in the manufacture and sale of high-quality racing and mountain bicycles. At the end of 2011, Ontario's balance sheet reported total accounts receivable of $250,000 and an allowance for doubtful accounts of $18,000. During 2012, the following events occurred:
1. Credit sales in the amount of $2,300,000 were made.
2. Collections of $2,250,000 were received on account.
3. Customers with total debts to Ontario Company of $38,000 were declared bankrupt, and those accounts receivable were written off.
4. Bad debts expense for 2012 was recorded as 2% of credit sales.
As the chief financial officer for Ontario Company, you have been asked by a member of the executive committee to do the following:
a. Explain the effects of each of the above transactions on the company's financial statements.
b. Show how the accounts receivable will be reported on Ontario's balance sheet as at December 31, 2012.
c. Evaluate the adequacy of the company's allowance for doubtful accounts as at December 31, 2012.