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You are the owner of a lawn service company (LawnCo) whichprovides grounds and maintenance services to a range of corporatecustomers. Customers are expected to pay on the first of eachmonth, in advance of receiving services. One of your corporatecustomers is an eldercare facility whose grounds you havemaintained for many years. The customer has not paid for the lastthree months of services (from Oct.–Dec. 2020); nevertheless, tomaintain a positive relationship, your company continued to providemowing and weed control services to the eldercare facility duringthat time. Your company ceased providing services in January 2021and found out in that same month that the eldercare facility filedfor bankruptcy in September. Your company now believes thatcollection of the missed payments is extremelyunlikely.  Your company has already issued financialstatements to lenders (for the period ending 12/31/20) whichreflected revenue and a corresponding account receivable related tothis customer of $10,000 per month for services provided to thiscustomer. Those financial statements also reflected the company’sstandard allowance (reserve) amount on receivables, of 4% of sales.In total, your company’s average monthly sales amount to$500,000.

Required:

1. Evaluate whether receipt of this information indicates youhave a change in accounting estimate or whether the customer’sbankruptcy should result in this event being considered an error inpreviously issued financial statements.

2. Next, describe the accounting treatment (as required by theCodification) for each alternative, then support your explanationswith draft journal entries.

3. Finally, briefly state which treatment appears to be moreappropriate given the circumstances. If you must make anyassumptions in reaching this conclusion, state these.