Exercise 7-5 Percent of sales method; write-off LO P3 At year-end (December 31), Chan Company estimates its bad debts as 0.20% of its annual credit sales of $968,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $484 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 for these transactions.

Dec 31 Dr Bad debts expense 1,936

Cr Allowance for doubtful accounts 1,936

Feb 01 Dr Allowance for doubtful accounts 484

Cr Accounts receivable—P. Park 484

Jun 05 Dr Accounts receivable—P. Park 484

Cr Allowance for doubtful accounts 484

Jun 05 Dr Cash 484

Cr Accounts receivable—P. Park 484

Explanation:

General Journal Debit Credit

Dec 31

Dr Bad debts expense 1,936

(0.002 × $968,000)

Cr Allowance for doubtful accounts 1,936

Feb 01

Dr Allowance for doubtful accounts 484

Cr Accounts receivable—P. Park 484

Jun 05

Dr Accounts receivable—P. Park 484

Cr Allowance for doubtful accounts 484

Jun 05

Dr Cash 484

Cr Accounts receivable—P. Park 484

To record estimated bad debts expense (0.002 × $968,000) = $1,936

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