Question

Application Problem 6-5B a-c Majestic Equipment Sales Company, which sells only on account, had a $129,000 balance in its Accounts Receivable and a $4,300 credit balance in its Allowance for Doubtful Accounts on December 31, 2019. During 2020, the company's sales of equipment were 5827,000 and its total cash collections from customers were $798,000. During the year, the company conduded that customers with accounts totalling $7,600 would be unable to pay, and wrote these receivables off. However, one of these customers subsequently made a payment of $850. (Note that this amount is not included in the cash collections noted above.) At the end of 2020, management decided that it would use an estimate for bad debts of 1% of its credit sales. Prepare the journal entries to record all the 2020 transactions, including the adjustment for bad debts expense at year end. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.) Account Titles and Explanation Det Credit To record sales) To record cash collected from customers) To write of accounts receivable) To reinstate an account that were previously written To record recovery of account that were previously written ont) To recognize the bed debts experse) Show how the accounts receivable section of the statement of financial position at December 31, 2020, would be presented. Majestic Equipment Sales Company Statements of Financial Position (Partial) Accounts receivable, net What amount of bad debts expense would appear in the statement of income for the year ended December 31, 2020? Bad debts expense for year

Answer 1

Journal entry

Account title and explanation	Debit	Credit
Account receivable	827000
Sales revenue		827000
(To record sales)
Cash	798000
Account receivable		798000
(To record cash collected)
Allowance for doubtful accounts	7600
Account receivable		7600
(To write off account receivable)
Account receivable	850
Allowance for doubtful accounts		850
(To reinstate on account that were previously written off)
Cash	850
Account receivable		850
(to record recovery of account that were previously written off)
Bad debt expense (827000*1%)	8270
Allowance for doubtful accounts		8270
(To record bad debt expense)

Balance sheet presentation

Account receivable	150400
Less: Allowance for doubtful accounts	-5820
	144580

Bad debt expense = $8270