Question
Majestic Equipment Sales Company, which sells only on account, had a $129,000 balance in its Accounts Receivable and a $5,900 credit balance in its
Majestic Equipment Sales Company, which sells only on account, had a $129,000 balance in its Accounts Receivable and a $5,900 credit balance in its Allowance for Doubtful Accounts on December 31, 2019. During 2020, the company's sales of equipment were $827,000 and its total cash collections from customers were $785,000. During the year, the company concluded that customers with accounts totalling $7,900 would be unable to pay, and wrote these receivables off. However, one of these customers subsequently made a payment of $850. (Note that this amount is not included in the cash collections noted above.) At the end of 2020, management decided that it would use an estimate for bad debts of 1% of its credit sales.
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