Kandel Company had the following data available for 2012 (before making any adjustments):

Accounts receivable, 12/31/12................$320,100

Allowance for doubtful accounts.................2,600

Net credit sales, 2012...........................834,000

Required

1. Identify and analyze the adjustment to recognize bad debts under the following assumptions:

(a) Bad debts expense is expected to be 2% of net credit sales for the year and

(b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.

2. Assume instead that the balance in the allowance account is a negative $2,600. How will this affect your answers to part (1)?