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 for these transactions.
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Journal entry worksheet
1 2 3 4
Record the estimated bad debts expense.
Note: Enter debits before credits
Date General Journal Debit Credit
Dec 31
Record entry
Clear entry
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Journal entries below

Explanation:

Dec 31, Bad debts expense a/c Dr $4,875

To Allowance for doubtful a/c Cr $4,875

(To record bad debt expense)

Feb 1, Allowance for doubtful a/c Dr $580

To Accounts receivable - P. Park a/c Cr $580

(To record allowance for doubtful a/c)

June 5, Accounts receivable -P. Park Dr $580

To Allowance for doubtful a/c Cr $580

(To record bad debt written off)

June 5, Cash a/c Dr $580

To Accounts receivable - P. Park a/c Cr $580

(To record cash paid).

• Chen write off the receivable from balance sheet using the percentage of sales method of receivable of ($975,000 × 0.5%) = $4,875.

• Also on February 1, Chen writes off P.Park from receivable of $580 since he knew he will not pay but did pay on June 5 for $580; meaning that Chen reinstate the receivable afterwards collected cash from receivable.

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