Answer:
The required journals are:
Debit Bad debt expense $10,070
Credit Allowance for doubtful accounts $10,070
<em>(To record bad debt for the year)</em>
Explanation:
To understand the effects of the transactions, we need to journalize as follows:
Debit Accounts receivable $454,000
Credit Sales revenue $454,000
<em>(To record sales transaction on account)</em>
Debit Cash $325,000
Credit Accounts receivable $325,000
<em>(To record collections on account)</em>
Debit Allowance for doubtful accounts $5,600
Credit Accounts receivable $5,600
<em>(To record write-off of accounts receivable)</em>
With the above journals, the balance in accounts receivable will be: $20,000 + $454,000 - $325,000 - $5,600 = $143,400. The 5% of $143,400 will be $7,170.
The effect of the write-off was to throw the unadjusted allowance for doubtful account into debit as $2,700 - $5,600 = $2,900. The required bad debt expense will $10,070 ($7,170 + $2,900).
