At year-end (December 31), Chan Company estimates its bad debts as 0.30% of its annual credit sales of $656,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $328 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 for these transactions.

1. Record the estimated bad debts expense.

2. Record the entry to write off P. Park's account as uncollectible.

3. Record the reinstatement of Park's previously written off account.

4. Record the cash received on account.

Explanation:

The journal entry is given below:-

1.  Bad debt expense Account Dr                  $1,968

($656,000 × 0.30%)

           To Allowance for doubtful debts                 $1,968

( To record the bad debt expense)

2. Allowance for doubtful debts Dr                $328

         To Account receivable                                      $328

(To record the written off amount)

3. Account receivable                                     $328

            To Allowance for doubtful debts                   $328

(Being to record the reinstatement)

4. Cash Dr                                                        $328

             To Account receivable                                  $328

(To record the cash received)