Question

Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of credit sales. In 2017, however, Sawyer determines that it must revise upward the estimate of bad debts for the current year’s credit sales to 2%, or double the prior years’ percentage. Sawyer uses the revised estimate of 2% and calculates bad debt expense of $500,000. How is the change in the estimated bad debt expense reported in Sawyer’s 2017 financial statements?

Answer 1

Answer:

Sawyer, Inc., should record a $500,000 expense in its annual income statement, since they expect their income to decrease in that amount.

They also have to record a $500,000 credit to the Allowance for Doubtful Accounts account in the balance sheet, which lowers the value of the Accounts Receivable account.

Answer 2

Answer:

$500,000 expense in its annual income

           Hope this helps! good luck :)