Cotton Company uses the percentage of sales approach to record bad debt expense for its monthly financial statements and the percentage of receivables approach for its year end financial statements. Cotton Company has an October 31 fiscal year end, doses temporary accounts annually, and uses a perpetual inventory system Cotton Company has no stated return policy. On August 31, 2021, after completing its month end adjustments, it had accounts receivable of $74,500, a credit balance of $2.980 in Allowance for Doubtful Accounts, and bad debt expense of $9,860. In September and October, the following occurred: September Sold $56,300 of merchandise on account; the cost of the merchandise was $25,335. A total of $900 of the merchandise sold on account was returned. The customers were issued credit memos. The cast of the merchandise was $400 and it was returned to inventory Collected $59.200 cash on account from customers. 4. Interest charges of $745 were charged to outstanding accounts receivable. As part of the month-end adjusting entries, recorded bad debt expense of 2% of credit sales for the month. 1. 2 3. 5. October 1. 2. 3. 4. Credit sales in the month were $63,900; the cost of the merchandise was $28,700. Received $350 cash from a customer whose account had been written off in July. Collected $58,500 cash, in addition to the cash collected in transaction 2 above, from customers on account. Wrote off $7,500 of accounts receivable as uncollectible. Interest charges of $710 were charged to outstanding accounts receivable. Recorded the year-end adjustment for bad debts. Uncollectible accounts were estimated to be 4% of accounts receivable. 5. 6