Prepare the journal entry to record the bad debts expense at year end. 2. Show the balance sheet presentation of the accounts receivable account. 3. What is the amount of bad debts expense that appears on the income statement? How is this amount classified?
Problem - Accounts Receivable Activity
Michael’s Bookshelf specializes in used, rare, and out-of-print books. The store has a
large base of repeat customers who purchase books on 30-day accounts. At 15 days
overdue, each customer gets a phone call from Michael requesting payment. Michael has
experienced a high success rate with this collection effort. Michael’s CPA is preparing
year-end financial statements and has asked him for his estimate of uncollectible
accounts. Michael has a balance of $65,000 in the Accounts Receivable account at the
end of the year. He has analyzed his uncollectible accounts using an aging of the
accounts receivable. He estimates that only 2.5 percent of his accounts receivable
balance will not be collected. The Allowance for Doubtful Accounts has a credit balance
of $210 in the
1. Prepare the
2. Show the balance sheet presentation of the accounts receivable account.
3. What is the amount of bad debts expense that appears on the income statement?
How is this amount classified?
4. What would be the justification, if any, for Michael to use the direct write-off method
for accounting for uncollectible accounts?
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