EED Ltd. began operations on January 1, 20x7. The company uses the allowance method of accounting for bad debt expense. Based on industry averages and its experience in 20x7, EED Ltd. decided that an allowance equal to 5% of total accounts receivable would be sufficient to cover uncollectible accounts. On December 31, 20x7 there was a $2,000 credit balance in the allowance for doubtful accounts account and a $40,000 debit balance in the accounts receivable account.

During 20x8 the following summarized transactions occurred:

1.Sold merchandise on credit for $500,000.

2.Wrote off uncollectible accounts receivable in the amount of $1,500.

3.Received $200 in collection of an account that was written off in 20x7.

4.Received cash of $400,000 in payment of outstanding accounts receivable.

Prepare journal entries to record the above transactions on the books of EED Ltd. In

addition, prepare journal entries, if any, required at December 31, 20x8 to record bad debt expense for the year.