Clarissa Company has credit sales of $550,000 during 2011 and estimates at the end of 2010 that 2.5 percent of these credit sales will eventually default. Also, during 2011 a customer defaults on a $775 balance related to goods purchased in 2010. Prior to the write off for the $775 default, Clarissa’s accounts receivable and allowance for doubtful accounts balances were $402,000 and $129 (credit), respectively.
Required:
1. Prepare the journal entry to record the defaulted account.
2. Prepare the adjusting entry to record the bad debt expense for 2011.