This problem is an extension of Exercise. Only the amount of write-off of bad debts is different.

Kansas Furniture Mart had sales of $1,150,000 during 20X1, including $600,000 of sales on credit. Balances on December 31, 20X0, were Accounts Receivable, $120,000, and Allowance for Bad Debts, $10,000. For 20X1 collections of accounts receivable were $560,000. Bad debt expense was estimated at 2% of credit sales, as in previous years. Suppose a recession hit during 20X1 and the write-off of bad debts was $25,000, which is much higher than expected.

1. What is the balance in the Allowance for Bad Debts account at the end of 20X1? If left unadjusted, how would this affect the Net Accounts Receivable? Does this seem reasonable?

2. What should Kansas Furniture Mart do to rectify this situation?