Matt's Magic Store Has Credit Sales of $500,000 in 2020

question 94

Short Answer

Matt's Magic Store has credit sales of $500,000 in 2020 and a debit balance of $800 in the Allowance for Doubtful Accounts at year end. As of December 31, 2020, $120,000 of accounts receivable remain uncollected. Matt's Magic uses the percentage of credit sales method. The historical level of bad debts expense is 2.5%.
Instructions
a) Prepare the adjusting entry to record the estimated uncollectible accounts expense on December 31, 2020.
b) Show the Statement of Financial Position presentation of accounts receivable on December 31, 2020.

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Definitions:

Abba Lerner

An economist known for his contributions to Keynesian economics, particularly his work on the theory of functional finance.

Adam Smith

An 18th-century Scottish economist and philosopher known for his theories on free market economies and the concept of the "invisible hand."

Karl Marx

A 19th-century philosopher, economist, and political theorist known for his critical analysis of capitalism and his influence on the development of socialism and communism.

Variable Costs

Costs that change in proportion to the level of activity or volume of output in production, such as raw materials and labor.