Apply the allowance method: Mouse Ears Inc. has been in business for five years. At the end of each reporting period management uses the allowance method for estimating and recognizing bad debt expense. You have been hired to prepare the journal entry to recognize bad debt using management's estimate for this reporting period. Mouse Ears Inc.'s management provides you with the following information: Net sales of $5,250,000, accounts receivable of $820,000 and the allowance for doubtful accounts of $200,000. After management aged the receivables, they concluded that 25% of the $820,000 accounts receivable would not be collectible. Using the allowance method - What would the correct journal entry be to record / to recognize bad debt expense based on management's estimate? A) Bad Debts Expense $205,000 Allowances for Doubtful Accounts $205,000
B) Bad Debts Expense $5,000 Allowance for Doubtful Accounts $5,000
C) No entry needs to be made

Selected information about income statement accounts for the reed company is presented below (the company's fiscal year ends on december 31): 2018 2017sales $ 4,400,000 $ 3,500,000cost of goods sold 2,860,000 2,000,000administrative expenses 800,000 675,000selling expenses 360,000 312,000interest revenue 150,000 140,000interest expense 200,000 200,000loss on sale of assets of discontinued component 50,000 —on july 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by gaap. the assets of the component were sold on september 30, 2018, for $50,000 less than their book value. results of operations for the component (included in the above account balances) were as follows: 1/1/18-9/30/18 2017 sales $ 400,000 $ 500,000 cost of goods sold (290,000 ) (320,000 )administrative expenses (50,000 ) (40,000 )selling expenses (20,000 ) (30,000 )operating income before taxes $ 40,000 $ 110,000 in addition to the account balances above, several events occurred during 2018 that have not yet been reflected in the above accounts: a fire caused $50,000 in uninsured damages to the main office building. the fire was considered to be an infrequent but not unusual event. inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. the inventory was sold as scrap for $5,000.income taxes have not yet been recorded. required: prepare a multiple-step income statement for the reed company for 2018, showing 2017 information in comparative format, including income taxes computed at 40% and eps disclosures assuming 300,000 shares of common stock. (amounts to be deducted should be indicated with a minus sign. round eps answers to 2 decimal places.)