The December 31, 2019 statement of financial position of Howson Limited (Howson) showed Trade Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $45,000. During 2020, the following transactions occurred: Total service revenue of 2,000,000 was recognized of which 75% was billed on account; collections from customers totaled $1,300,000; accounts written off totaled $37,000; and previously written off accounts of $4,000 were collected.

Required

a) Journalize the 2020 transactions. (6 marks)

b) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 5% of trade accounts receivable, prepare the adjusting entry at December 31, 2020? (6 marks) c) Management of Howson wants to show the highest possible net income for the year ended December 31, 2020. The president states, one of my competitors told me that using % of credit sales method in determining our bad debt expense would increase the Companys net income. Our industry average % of 2.4% is very reflective of our bad debt experience.

Required:

The president of Howson has two questions she would like addressed.

1. First, would you recommend Howson adopt this method. (2 marks)

2. Secondly, regardless of your recommendation in (i), what amount would the net book value of the Accounts Receivable show on Howsons Balance Sheet if the method were adopted?

(2 marks)