Comparing the Percentage of Sales and the Percentage of Receivables Methods
Response to the following problem:
Keefer Company uses the percentage of sales method for computing bad debt expense. As of January 1, 2009, the balance of Allowance for Bad Debts was $200,000. Write-offs of uncollectible accounts during 2009 totaled $240,000. Reported bad debt expense for 2009 was $320,000, computed using the percentage of sales method
Keith & Harding, the auditors of Keefer's financial statements, compiled an aging accounts receivable analysis of Keefer's accounts at the end of 2009. This analysis has led Keith & Harding to estimate that, of the accounts receivable Keefer has as of the end of 2009, $700,000 will ultimately prove to be uncollectible.
Given their analysis, Keith & Harding, the auditors, think that Keefer should make an adjustment to its 2009 financial statements.
What adjusting journal entry should Keith & Harding suggest?