Problem $2$

The Red Bird Farm has experienced bad debts in the past several years. Given the current state of farm economy, the owner believes that some of his customers will fail to make payments, and thus the farm will have bad debts in the next year as well. He wants to be conservative and adjust accounts receivable for bad debts.

a$.$ List and briefly explain two methods that the farmer can use to adjust the accounts receivable for bad debts.

b$.$ Use the information below to calculate the net accounts receivable the Red Bird Farm will record on the Balance Sheet $($February $20,2023),$ if the allowance method is used. Accounts receivable $($on February $20$th$,2023)$ are $$128,000.$

$202020212022$

Recorded lost income due to bad debts $$0$ $$12,500$ $$14,300$

Accounts receivable $$120,000$ $$135,000$ $$137,000$