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The December 31, 2020 balance sheet of Blue Star Inc. had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of
The December 31, 2020 balance sheet of Blue Star Inc. had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $30,000. During 2020, the following transactions occurred: sales on account $1,700,000; sales returns and allowances, $150,000; collections from customers, $1,400,000; accounts written off $45,000; and previously written off accounts of $6,000 were collected. Instructions (a) Journalize the 2020 transactions. (b) If the company uses the percentage of sales approach to estimate bad debts expense and anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31, 2020? (c) If the company uses the percentage of receivables approach to estimate bad debt expense and determines that uncollectible accounts are expected to be 5% of accounts receivable, what is the adjusting entry at December 31, 2020? (d) Which approach would produce a higher net income for 2020 and by how much
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