Question 1: Sheila’s Bookshelf specializes in used, rare, and out-of-print books. The store has a large base of repeat customers who purchase books on 30-day accounts. At 15 days overdue, each customer gets a phone call from Michael requesting payment. Michael has experienced a high success rate with this collection effort. Michael’s CPA is preparing year-end financial statements and has asked him for his estimate of uncollectible accounts. Michael has a balance of $75,000 in the Accounts Receivable account at the end of the year. He has analyzed his uncollectible accounts using an aging of the accounts receivable. He estimates that only 1.5 percent of his accounts receivable balance will not be collected. The Allowance for Doubtful Accounts has a credit balance of $410 in the trial balance. 5 points

1. Prepare the journal entry to record the bad debts expense at year end using the Percentage of Receivables (Aging) Method.

2. Show the balance sheet presentation of the accounts receivable account.

3. What is the amount of bad debts expense that appears on the income statement?

4. What would be the justification, if any, for Michael to use the direct write-off method for accounting for uncollectible accounts?