Question 2: Allowance for Doubtful Accounts (10 marks)

The following data relates to Media Solutions Inc. for the year 2021:

Sales for 2021 (80% on credit): $765,000

Sales returns & allowances for 2021: $ 15,000

Accounts receivable as at Dec. 31, 2021 $ 80,000

Allowance for doubtful accounts as at Jan 1, 2021: $ 3,000 CR

Media Solutions estimates its bad debt expense during the year as 1% of net credit sales. On September 12, 2021, Media unexpectedly collected $2,400 of a previously written-off account. Media has a December 31 year end.

Required:

a. Record the journal entries for:

i. The collection of the previously written-off account on September 12;

ii. Bad debt expense for the year.

b. After the journal entries from a) had been completed, management reviewed the balance in the allowance for doubtful accounts and determined that it should be 8% of gross accounts receivable. Prepare the adjusting journal entry required.