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)?

AppendixLO1