At December 31, 2020, Obermeyer Imports reported the following information on its balance sheet.

Accounts receivable $250,000

Less: Allowance for doubtful accounts 15,000

During 2021, the company had the following transactions related to receivables.

1. Sales on account $2,600,000

2. Sales returns and allowances 45,000

3. Collections of accounts receivable 2,250,000

4. Write-offs of accounts receivable deemed uncollectible 10,000

5. Recovery of bad debts previously written off as uncollectible 3,000

Instructions.

Requirement: Assuming Obermeyer Imports uses percentage of sales method. Past experience indicates that estimated bad debt expense are usually 0.5% on sales.

(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.

(b) Enter the January 1, 2021, balances in Accounts Receivable and Allowance for Doubtful Accounts. Post the entries to the two accounts (use T-accounts) and determine the balances.

(c) Prepare the journal entry to record bad debt expense for 2021.