Part 1 Dortmund Stockyard reports $896,000 in credit sales for 2018 and $802,670 in 2019. It has a $675,000 accounts receivable balance at the end of 2018, and $682,000 at the end of 2019. Dortmund uses the balance sheet method to record bad debt estimation at 8% during 2018. To manage earnings more favorably, Dortmund changes bad debt estimation to the income statement method at 6% during 2019.

A. Determine the bad debt estimation for 2018.

B. Determine the bad debt estimation for 2019.

C. Describe a benefit to Dortmund Stockyard in 2019 as a result of its earnings management.

Part 2 Mystic Magic issued a $120,250 note on January 1, 2018 to a customer, Amy Arnold, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 9.6% annual interest rate. Amy Arnold does not pay on her account and dishonors the note. On November 10, 2018, Mystic Magic decides to sell the dishonored note to a collection agency for 25% of its value. Record the journal entries for Mystic Magic for the following transactions.

A. Initial sale on January 1, 2018

B. Dishonored note entry on October 1, 2018

C. Receivable sale on November 10, 2018