The Femaware Company uses the allowance method to account for bad debts. At the beginning of year 1, the allowance account had a credit balance of $66,844. Credit sales for year 1 totaled $2,139,000 and the year end accounts receivable balance was $436,713. During this year, $65,061 in receivables were determined to be uncollectible. Femaware anticipates that 4% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:

1. Does this situation describe a loss contingency? Explain.

2. What is the bad debt expense that Femaware should report in its year 1 income statement?

3. Prepare the appropriate journal entry to record the contingency.

4. What is the net realizable value (book value) Femaware should report in its year 1 balance sheet?