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19 October, 15:27

At year-end (December 31), Chan Company estimates its bad debts as 0.40% of its annual credit sales of $751,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $376 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.

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  1. 19 October, 18:23
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    When Amount of Allowance for estimated doubtful debts is made:

    Bad Debts $3,004 (debit)

    Allowance for Doubtful Debts $3,004 (credit)

    When Chan writes off P. Park on February 1

    Allowance for doubtful $376 debts (debit)

    Trade Receivable - P. Park $376 (credit)

    When Park unexpectedly pays the amount previously written off

    Accounts Receivable - P. Park $376 (debit)

    Allowance for doubtful debt $376 (credit)

    Reinstate the debt

    Bank $376 (debit)

    Trade Receivable - P. Park $376 (credit)

    Recognise cash receipt

    Explanation:

    When Amount of Allowance for estimated doubtful debts is made:

    $751,000 * 0.40%

    $3,004

    Bad Debts $3,004 (debit)

    Allowance for Doubtful Debts $3,004 (credit)

    When Chan writes off P. Park on February 1

    Allowance for doubtful $376 debts (debit)

    Trade Receivable - P. Park $376 (credit)

    When Park unexpectedly pays the amount previously written off

    Accounts Receivable - P. Park $376 (debit)

    Allowance for doubtful debt $376 (credit)

    Reinstate the debt

    Bank $376 (debit)

    Trade Receivable - P. Park $376 (credit)

    Recognise cash receipt
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