Response to the following problem:
On January 1, 2016 the Accounts Receivable general ledger account balance of Chapel Cycle Works Inc. was $265 and the balance in the \Allowance For Doubtful Accounts general ledger account was $7. The firm's credit sales during the year were $2,105 and cash collections from customers amounted to $2,025. Among these collections was the recovery in full of a $3 receivable from K. Lush, a customer whose account had been written off as uncollectible in the previous year.
During the current year it was necessary to write off as uncollectible customers' accounts totalling $8.
At December 31, the accounts receivable included $40 of past-due accounts. After careful study of all past-due accounts, the management estimated that the probable loss contained therein was 20 per cent and that, in addition, 2 per cent of the current accounts receivable might prove uncollectible.
1. Calculate the balance of the accounts receivable account at December 31.
2. Prepare the necessary adjusting entry for the bad debts at December 31.
3. What amount should appear in this year's income statement as bad debt expense?
4. Show the balance sheet presentation of accounts receivable at December 31.