Question 4 (Valuation and derecognition of receivable: 10 marks) 4-1. The trial balance before adjustment of Macao Company reports the following balances: Cr. Dr. $100.000 Accounts receivable Allowance for doubtful accounts Sales (all on credit) Sales returns and allowances $ 2,500 750,000 40,000 Required: (a) Prepare the entry for estimated bad debts assuming that doubtful accounts are estimated to be 6% of gross accounts receivable. (2 marks) (b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $2.500 instead of a credit balance. How will this difference affect the journal entry in part (a)? (2 marks) 4-2. On May 1, Dexter, Inc. factored $800,000 of accounts receivable with Quick Finance on a without guarantee basis. Under the arrangement, Dexter was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover future adjustments. 9 Required: (2 marks) (a) Prepare the journal entry required on Dexter's books on May 1. (6) Prepare the joumal entry required on Quick Finance's books on May 1. (2 marks) (c) Assume Dexter factors the $800,000 of accounts receivable with Quick Finance on a with guarantee basis instead. Prepare the journal entry required on Dexter's books on May 1. (2 marks)