Question

At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of \(975,000. Chan records its bad debts expense for that estimate. On the following February 1, Chan decides that the \)580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.

Prepare the journal entries of Chan to record these transactions and events of December 31, February 1, and June 5.

Short answer

The journal entries for events occurring on December 31, February 1, and June 5 will be recorded following the bad debt written off or direct write off method.

Step-by-step solution

Journal entry

Date	Particulars	Debit	Credit
December 31	Bad debt expense	$4,875
	Allowance for doubtful accounts		$4,875
	(To record the bad debt expense)
February 1	Allowance for doubtful accounts	$580
	Accounts receivables		$580
	(To record the accounts receivables)
June 5	Accounts receivables	$580
	Allowance for doubtful accounts		$580
	(To record the accounts receivables written off)
June 5	Cash	$580
	Accounts receivables		$580
	(To record the cash)

Working notes

Bad debt expense=$4875