Allowance Method of Accounting for Bad Debts-Comparison of the Two Approaches Kandel Company had the following data available for 2016 (before making any adjustments): Accounts receivable, 12/31/16 Allowance for doubtful accounts Net credit sales, 2016 Required: $322,000 (Dr.) 2,600 (Cr.) 798,000 (Cr.) 1. Prepare the journal entry to recognize bad debts under the following assumptions: (a) bad debts expense is expected to be 2% of net credit sales for the year. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Date Description Dec. 31 Bad Debts Expense Allowance for Doubtful Accounts Debit 15,960 Credit Assets 15,960 Balance Sheet Liabilities Stockholders' Equity Revenues (b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), *+* for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Date Description Dec. 31 Bad Debts Expense Allowance for Doubtful Accounts Debit Credit Assets 3,840 3,840 Balance Sheet 2. Assume instead that the balance in the allowance account is a $2,600 debit. How will this affect your answers to part (1)? a. Based on 2% of net credit sales: How does this entry affect the accounting equation? Liabilities Stockholders' Equity Revenues Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), *+* for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Date Description Dec. 31 Bad Debts Expense Debit 9,040 Credit Assets Allowance for Doubtful Accounts 9,040 b. Based on 6% of year-end accounts receivable: Balance Sheet Liabilities Stockholders' Equity Revenues How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "-" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement. Journal Date Description Dec. 31 Debit Credit Assets Balance Sheet Liabilities Stockholders' Equity Revenues Income Statement Expenses Net Income Income Statement Expenses Net Income Income Statement Net Expenses Income Income Statement Net Expenses Income