Warnock Company had $400,000 in credit sales for 2012,and it estimated that 2% of the credit sales would not be collected.The balance in Accounts Receivable at the end of the year was $79,000.Warnock had never used the allowance method to account for its receivables till 2012.The net realizable value of its accounts receivable at the end of the year was $71,000.

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The net realizable value of accounts receivable is $71,000, which is less than the balance in Accounts Receivable of $79,000. This indicates that Warnock Company has underestimated its bad debt expense and needs to increase its allowance for doubtful accounts.

Warnock Company Had $400,000 in Credit Sales for 2012,and It