Reference no: EM132919007

On 1 July 2020, Essex Auto Services had the following balances:

Accounts receivable: $50 000 (debit)

Allowance for doubtful debts: 4 000 (credit)

During the year ending 30 June 2021, Essex Auto Services recorded the following:

Sales of $500 000 ($300 000 were on credit; $200 000 were for cash).

Collections on account of $291 000.

Write-offs of bad debts of $13 000.

Bad debt expense estimated at 5% of credit sales.

Required

Problem (a) Prepare the journal entries to record sales, collections, bad debts expense, and write-offs of bad debts for the year ending 30 June 2021. Use the journal format

Problem (b) Show how Essex Auto Services would report Accounts receivable on its balance sheet on 30 June 2021?

Problem (c) Briefly explain the 'allowance' method for recording bad debts expense and how it differs from the 'direct write-off' method. Explain why the 'allowance' method is considered to be more appropriate than the 'direct write-off' method for recording bad debts?