Question

Percent of sales method; write-off

At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of $975,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries of Chan to record these transactions and events of December 31, February 1, and June 5.

Answer 1

Entries are given below

Step-by-step explanation:

On 31 Dec Chan company estimates its bad debts as 0.5% of all credit sales

DEBIT CREDIT

Bad Debt(975,000x0.5%) $4875

Allowance for bad debt $4875

On February 1, Chan decides that the $580 account of P. Park is uncollectible

DEBIT CREDIT

Allowance for bad debt $580

Receivables $580

On June 5, Park unexpectedly pays the amount previously written off.

DEBIT CREDIT

Receivables (reinstated) $580

Allowance for bad debt (reinstated) $580

Cash (amount received) $580

Receivables $580