Situation B: The Israel Manners Entertainment Group uses the allowance approach to estimate bad debt expense, as is required of all companies with significant sales on accounts receivable. At the end of 2012, the Manners Group reported a balance in accounts receivable of $4,350,000 and estimated that $44,000 of its accounts receivable would likely be uncollectible. The allowance for doubtful accounts has a $1,500 debit balance at year-end, prior to the adjustment needed to raise it to the $44,000 desired amount. Use this information to answer the following questions: 1 How is it possible that the allowance for doubtful accounts has developed a debit balance instead of a credit balance? 2 What amount of bad debt expense should be recorded for 2012? What amount will be reported on the 2012 balance sheet as the net realizable amount of accounts receivable?
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