Question

At year-end (December 31), Chan Company estimates its bad debts as 0.80% of its annual credit sales of $654,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $327 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 Chan's journal entries for the transactions.

Answer 1

Answer and Explanation:

The journal entries are shown below:

On December 31

Bad debt expense Dr $5,232 ($654,000 × 0.80%)

To Allowance for doubtful debts $5,232

(To record the bad debt expense)

On Feb 01

Allowance for doubtful debts Dr $327

To Account receivable $327

(To record the uncollectible amount)

On June 5

Account receivable $327

To Allowance for doubtful debts Dr $327

(To record the uncollectible amount)

On June 5

Cash Dr $327

To Account receivable $327

(To record the cash received)