Installment Jewelry Company has been in business for 5 years but has never had its financial statements audited. Engaged to audit them for 2019, you find that the companys balance sheet carries no allowance for bad accounts. Bad accounts have been expensed as written-off and recoveries credited to income as collected. The companys policy is to write off at December 31 of each year those accounts on which no collections have been received for three months. The installment contracts generally are for 2 years. On your recommendation, the company agrees to revise its accounts for 2019 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table: Year of Sale Credit Sales Accounts Written Off Recoveries 2015 2016 2017 2018 2019 2015 $100,000 $550 $1,000 $850 2016 250,000 1,000 4,000 $1,900 $100 2017 300,000 1,300 3,950 $2,700 400 2018 288,000 1,500 5,000 500 2019 352,000 1,400 600 Accounts receivable at December 31, 2019, were as follows: 2018 credit sales $15,000 2019 credit sales 135,000 $150,000 Required: Prepare the adjusting journal entry or entries with appropriate explanations to set up the Allowance for Bad Accounts. CHART OF ACCOUNTS Installment Jewelry Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 533 Bad Debts Recovered 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense