Question
Comparing the Percentage of Sales and the Percentage of Receivables Methods: Bauer Company uses the percentage of sales method for computing bad debt expense. As
Comparing the Percentage of Sales and the Percentage of Receivables Methods:
Bauer Company uses the percentage of sales method for computing bad debt expense. As of Janu- ary 1, 2012, the balance of Allowance for Bad Debts was $300,000. Write-offs of uncollectible accounts during 2012 totaled $360,000. Reported bad debt expense for 2012 was $430,000, com- puted using the percentage of sales method.
Thomas & Steffen, the auditors of Bauers financial statements, compiled an aging accounts receivable analysis of Bauers accounts at the end of 2012. This analysis has led Thomas & Steffen to estimate that, of the accounts receivable Bauer has as of the end of 2012, $650,000 will ultimately prove to be uncollectible.
Given their analysis, Thomas & Steffen, the auditors, think that Bauer should make an adjustment to its 2012 financial statements. What adjusting journal entry should Thomas & Steffen suggest?
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