Your supervisor has asked you to do some work for her on Megan Company€™s accounts receivables.
Selected information from Megan Company follows.

For each situation, your supervisor suggests that you do the following:
1. Write the correct entry for Megan Company to record estimated Bad Debts Expense or actual Bad Debts Expense depending on the method used to value Accounts Receivable.
2. Determine the balance of Allowance for Doubtful Accounts at the end of December 2012.
Situation A€” Megan Company ages Accounts Receivable to determine the amount of the adjustment for estimated Bad Debts Expense.
The following facts are available:

Situation B€” Megan Company uses a percentage of Accounts Receivable to determine the amount of the adjustment for estimated Bad Debts Expense. The firm€™s average actual bad debts expense over the prior three consecutive years was 3 percent. The firm believes that this is a reasonable estimate of Bad DebtsExpense.