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Direct prepare-off method. Harrisburg Company, which began business in early 20X7, reported $40,000 of accounts receivable on the December 31, 20X7, balance sheet. Included in this amount was $550 for a sale made to Tom Mattingly in July. On January 4, 20X8, the company learned that Mattingly had filed for personal bankruptcy. Harrisburg uses the direct prepare-off method to account for uncollectibles.

a. Prepare the journal entry needed to prepare off Mattingly's account.
b. Comment on the ability of the direct prepare-off method to value receivables on the year-end balance sheet.

 

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