On December 31, 2017, Stilton Service Company€™s year-end, the unadjusted trial balance included the fol- lowing items:

Required
1. Prepare the adjusting entry on the books of Stilton Service Company to estimate bad debts under each of the following independent assumptions:
a. Bad debts are estimated to be 3% of credit sales. 

b. An analysis suggests that 6% of outstanding accounts receivable on December 31, 2017, will
become uncollectible.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2017, balance sheet given the facts in requirement 1(a).
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2017, balance sheet given the facts in requirement 1(b).
Analysis Component: Would you recommend to Stilton that it use the income statement or the balance sheet approach to estimate uncollectible accounts receivable? Explain why, identifying advantages and disadvantages for each approach.

Transcribed Image Text:

December 31, 2017 Age of Accounts Receivable Expected Percentage Accounts Receivable Uncollectible Not due (under 30 days) 1 to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due $1,500,000 1.25% 708,000 2.00 152,000 6.50 98,000 32.75 24,000 68.00