On December 31, 2020, Stilton Service Company?s year-end, the unadjusted trial balance included the following items:

Required

1. Prepare the adjusting entry on the books of Stilton Service Company to estimate bad debts under each of the following independent assumptions:

a. Bad debts are estimated to be 3% of credit sales.

b. An analysis suggests that 6% of outstanding accounts receivable on December 31, 2020, will become uncollectible.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2020, balance sheet given the facts in requirement 1(a).

3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2020, balance sheet given the facts in requirement 1(b).

Analysis Component: Would you recommend to Stilton that it use the income statement or the balance sheet approach to estimate uncollectible accounts receivable? Explain why, identifying advantages and disadvantages for each approach.

Transcribed Image Text:

Credit Account Debit Accounts receivable. $239,000 Allowance for doubtful accounts Sales ($470,000 cash sales). 3,100 1,128,000