At year-end (December 31), Chan Company estimates its bad debts as 0.90% of its annual credit sales of $743,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $372 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.

Chan Company

Journal Entries:

December 31:

Debit Bad Debts Expense $6,687

Credit Allowance for Doubtful Accounts $6,687

To record the bad debts expense.

February 1:

Debit Allowance for doubtful accounts $372

Credit Accounts receivable (P. Park) $372

To write-off bad debt.

June 5:

Debit Accounts receivable (P. Park) $372

Credit Allowance for doubtful accounts $372

To reverse previously written-off debt.

Debit Cash $372

Credit Accounts receivable (P. Park) $372

To record the receipt on account.

Explanation:

a) Data and Calculations:

Annual credit sales = $743,000

Estimated bad debts = 0.90% of credit sales

Estimated bad debts = $6,687 ($743,000 * 0.90%)

December 31:

Bad Debts Expense $6,687

Allowance for Doubtful Accounts $6,687

February 1:

Allowance for doubtful accounts $372

Accounts receivable (P. Park) $372

June 5:

Accounts receivable (P. Park) $372

Allowance for doubtful accounts $372

Cash $372

Accounts receivable (P. Park) $372

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