LO5 The following information is from the financial records of the Adham Corporation at the end of the year:

The allowance for bad debts account is based on an aging of the corporation’s accounts receivable. At the end of the year, the allowance for bad debts account was increased from $7,000 to $34,000. During the year, $8,000 of the accounts receivable was specifically identified by the company as uncollectible and written off.

a. If Adham’s bad debts arise from the sale of merchandise, how should the adjustments to the allowance for bad debt accounts be reported for tax purposes?

b. If Adham uses the cash method of accounting and the bad debts expense arises from providing counseling advice, how should the adjustments to the allowance for bad debt accounts be reported for tax purposes?

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Accounts receivable $450,000 Allowance for bad debts account (34,000) Net accounts receivable $416,000