Bug Brigade, Inc. $($Bug$)$ is a large national pest control company. They deliver monthly prevention and treatment services to commercial buildings across the country. They have hired you, as a newly licensed CPA, to conduct research for their accounting department. You have been given the following information about an accounting situation that has arisen in the company.

One of Bug$$s long$-$term clients, Jump Street Suites, Inc. $($Jump$),$ has not paid for its monthly services for August through December of $2022.$ This has occurred despite the fact that all clients are required to remit payments for services in advance. Due to the fact that Jump previously had not missed any payments and in the hopes of maintaining a good relationship with the client, Bug provided services during those five months but stopped in January $2023.$ In February of $2023,$ Bug learned that Jump had filed for bankruptcy in August $2022.$ It is believed by the company that collection of the missed payments is extremely unlikely.

Financial statements for the year ended December $31,2022,$ have already been released. These statements included Jump$$s revenue of $$13,375$ per month as well as the related account receivable. Also included in Bug$$s financial statements was the standard allowance $($reserve$)$ amount on receivables of $3\%$ of sales. Bug$$s average monthly sales for $2022$ were $$290,000.$

Bug$$s Controller, Landi Brady, is concerned with the situation with Jump, especially since the financial statements have been issued and sent to the company$$s lenders. Landi would like your input on the proper accounting treatment given the facts above.

Your Responsibility

Prepare an accounting research memo addressing the question that has been raised.

You will need to determine whether or not these facts result in an error in the previously issued financial statements or a change in estimate. The accounting treatment for each of these alternatives must be described in detail, including relevant sections of the Codification.

Prepare draft journal entries for each of the above alternatives.

In your conclusion, indicate which of the alternatives is more appropriate. Include any assumptions you are making that support your conclusion.