Question

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Majestic Equipment Sales Company, which sells only on account, had a $128,000 balance in its Accounts Receivable and a $4,500 credit balance in its Allowance for Doubtful Accounts on December 31, 2019. During 2020, the company's sales of equipment were $821,000 and its total cash collections from customers were $796,000. During the year, the company concluded that customers with accounts totalling $6,000 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 o for the amounts.) Account Titles and Explanation Debit Credit (To record sales) (To record cash collected from customers) (To write off accounts receivable) (To reinstate an account that were previously written off) (To record recovery of account that were previously written off) (To recognize the bad debts expense) Show how the accounts receivable section of the statement of financial position at December 31, 2020, would be presented.

Answer 1

a)
Account Titles & Explanation	Debit	Credit
Accounts Receivable	$              821,000.00
Sales Revenue		$ 821,000.00
Cash	$              796,000.00
Accounts Receivables		$ 796,000.00
(To record cash collected from customers)
Allowance for Doubtful Accounts	$                  6,000.00
Accounts Receivables		$     6,000.00
(To write off accounts receivable)
Accounts Receivable	$                     850.00
Allowance for Doubtful Accounts		$        850.00
(To reinstate an account that were previously written off)
Cash	$                     850.00
Accounts Receivables		$        850.00
(To record recovery of account that were previously written off)
Bad Debts Expense ($147,000 x 1%)	$                  1,470.00
Allowance for Doubtful Accounts		$     1,470.00
(To recognize the bad debts expense)
Beginning Bal.	$              128,000.00	$ 796,000.00	Cash
Sales Revenue	$              821,000.00	$     6,000.00	Allowance for Doubtful Accounts
Allowance for Doubtful Accounts	$                     850.00	$        850.00	Cash
Ending Bal.	$              147,000.00
. b. Show how the accounts receivable section of the balance sheet at December 31, 2020, would be presented.
Accounts Receivables , Dec 31, 2020	$              147,000.00
Less: Allowance for Doubtful Accounts	$                   (820.00)
Net Account Receivables	$              146,180.00
Allowance for Doubtful Accounts
A/R	6000	4500	Beginning Balance
		$        850.00	A/R
		$     1,470.00	Bad debt
		$        820.00	Ending Bal.