2. Universal Co. sells discounted internet access to college students. In 2021, sales for the year were $840,000, of which 60% were on credit. Universal initially records bad debt expense as 2% of credit sales. On January 1, 2021, the balance in the allowance for doubtful accounts was $8,000. During 2021, Universal decided to write off $5,000 in uncollectible accounts. It also recovered $2,500 of previously written-off amounts during 2021. At year end, management reviewed outstanding receivables, and decided that a balance of $9,000 would be appropriate for the allowance account.

Required:

1. Prepare the journal entry for the initial recording of bad debt expense in the year (2 marks).
2. Prepare the journal entries for:

1. The write-off of uncollectible amounts in 2021
2. The collection of previously written-off amounts in 2021. (3 marks)

3. Prepare the adjusting journal entry needed to bring the allowance account to its appropriate year-end balance. (2 marks)

3. On April 2, 2021, Unbreakable Gifts Inc. shipped merchandise costing $40,000 to The Gift Warehouse on consignment. Unbreakable paid $2,000 in shipping costs to deliver the inventory. On June 5, 2021, The Gift Warehouse paid $1,000 in advertising on behalf of Unbreakable. On September 30, 2021, The Gift Warehouse advised Unbreakable that all of the inventory had been sold for a total of $75,000. On October 15, 2021, Unbreakable received payment from The Gift Warehouse for the proceeds, less a 15% commission and the outlay for the advertising.

Required:

Prepare all the journal entries for Unbreakable Gifts Inc. to account for the transaction from April 2 through October 15. (5 marks)