McLaughlin Corporation uses the allowance method to account for bad

McLaughlin uses the allowance method to account for bad debts. At the end of the company’s fiscal year, are analyzed and the allowance for uncollectible accounts is adjusted. At the end of 2021, the company reported the following amounts:

Accounts receivable ……………………………………$ 10,850,000
Less: Allowance for uncollectible accounts ……….(450,000)
Accounts receivable, net …………………………….$ 10,400,000

In 2022, it was determined that $1,825,000 of year-end 2021 receivables had to be written off as uncollectible.
This was due in part to the fact that Hughes a long standing customer that had always paid its bills, unexpectedly declared bankruptcy in 2022. Hughes owed McLaughlin $1,400,000. At the end of 2021, none of the Hughes receivable was considered uncollectible.

Required:
Should McLaughlin’s underestimation of bad debts be treated as an error correction (requiring retroactive restatement) or a change in estimate (and accounted for prospectively)? Describe the appropriate accounting treatment and required disclosures in the issued for the 2021 fiscal year.

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