During the year ended December 31, 2018, Kellys Camera Shop had sales revenue of $220,000, of which $110,000 was on credit. At the start of 2018, Accounts Receivable showed a $11,000 debit balance and the Allowance for Doubtful Accounts showed a $700 credit balance. Collections of accounts receivable during 2018 amounted to $78,000. Data during 2018 follow: On December 10, a customer balance of $2,000 from a prior year was determined to be uncollectible, so it was written off. On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Required: Give the required journal entries for the two events in December. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2018. On the basis of the data available, does the 2 percent rate appear to be reasonable?

a.

• Record the write-off of a certain customer account from a prior year which is not collectible totaling $2,000.'
• Record the estimated bad debt losses at 2 percent of credit sales for the year.

b.

Show how the amounts related to Bad Debt Expense would be reported on the income statement?

Kellys Camera Shop
Income Statement (partial)
Year ending December 31, 2018
Operating Expenses:
Accounts Payable

c.

Show how the amounts related to Accounts Receivable would be reported on the balance sheet?

Kellys Camera Shop
Balance Sheet (partial)
At December 31, 2018
Current Assets