Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable

Master Companys December 31, 2019, balances related to accounts receivable follow.

Accounts receivable	$800,000 Dr.
Allowance for doubtful accounts	40,000 Cr.

During 2020, $90,000 of accounts receivable is considered uncollectible, and no more effort to collect these accounts will be made. Total sales for 2020 are $2,400,000, of which $400,000 are cash sales. A total of $1,800,000 was collected on account during 2020.

a. Assuming that Master uses the allowance method to estimate net accounts receivable and uses 9% of accounts receivable as its estimate of expected credit losses, prepare the (1) journal entries to record write-offs and bad debt expense for 2020, and (2) disclosure on gross and net accounts receivable on the balance sheet at December 31, 2020.

b. How would the answers to part a change (if at all) assuming instead that the December 31, 2019, balance in the allowance for doubtful accounts was a debit balance of $10,000?

a.

1.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record account write-off
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record bad debt expense

2.

Note: Do not use negative signs with your answers.

Balance Sheet, December 31, 2020
Accounts receivable	Answer
Less: Allowance for doubtful accounts	Answer
Accounts receivable, net	Answer

b.

1.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record account write-off
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventoryEstimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record bad debt expense

2.

Note: Do not use negative signs with your answers.

Balance Sheet, December 31, 2020
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net

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