Supreme Sales Company, which sells only on account, had a $100,000 balance in its accounts receivable and a $4,000 balance in its allowance for doubtful accounts on December 31, 2007. During 2008, the company's sales of merchandise were $900,000, and its total cash collections from customers were $870,000.
During the year, the company concluded that customers with accounts totalling $8,000 would be unable to pay, and wrote these receivables off. However, one of these customers subsequently made a payment of $1,000. At the end of 2008, management decided that it would use an estimate for bad debts of 1% of its credit sales.
Required:
1. Prepare the journal entries to record all the 2008 transactions, including the adjustment for bad debts expense at year end.
2. Show how the accounts receivable section of the balance sheet at December 31, 2008, would be presented.
3. What amount of bad debts expense would appear in the income statement for the year ended December 31, 2008?