In 20X1 ABC Company had credit sales of $22,000,000. Its year-end balances for accounts receivable and the allowance for doubtful accounts were $2,000,000 and $50,000, respectively.

Requirement 1 (Be sure to show your calculations for credit.):

a) Assume the company uses the income statement method in estimating bad debts. Make the year-end adjusting entry for bad debts on 12-31-X1 assuming the companys estimate is based on a 1% rate.

b) Calculate the Net Realizable Value of accounts receivable at year-end.

Requirement 2 (Be sure to show your calculations for credit.):

a) Assume the company uses the balance statement method in accounting for bad debts. Make the year-end adjusting entry for bad debts on 12-31-X1 assuming the companys estimate is based on a 10% rate.

b) Calculate the Net Realizable Value of accounts receivable at year-end.