Question

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2017, accounts receivable were $590,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	590,000
Credit sales		2,700,000
Collections		(2,563,000	)
Write-offs		(47,000	)
Ending balance	$	680,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	410,000	5	%
61–90 days		97,000	11
91–120 days		57,000	27
Over 120 days		116,000	38
Total	$	680,000

Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record a summary entry to record the monthly bad debt accrual.
2. Prepare the necessary year-end adjusting entry for bad debt expense. Record the year-end adjusting entry for bad debt expense.
3-a. What is total bad debt expense for 2018?

Bad debt expense

3-b. How would accounts receivable appear in the 2018 balance sheet?

Balance Sheet (partial)
Current assets:
Accounts receivable (net)

  

Answer 1

1. Bad debt expense will be 3% of the credit sales which will be  $81000 calculated as (3%*$2,700,000) and the write off is $47000
Dr Bad debts expense $81000
Cr allowance for uncollectible accounts $81000
Dr allowance for uncollectible accounts $47000
Cr accounts receivable $47000
2. First we will calculate allowance for uncollectible accounts-
Beginning balance $54,000
Add: Bad debts expense $81000
Less: Write-offs   -$47,000
Ending bal. before adjustment $88000
Allowance needed = 410000*5%+97000*11%+57000*27%+116000*38%								$ 90,640.00
So, the additional amount required is $90,640-$88,000						$ 2,640.00
Dr Bad debts expense $2640
Cr allowance for uncollectible accounts $2640
3.1 Total bad debt expense for 2013 = $81000+$2640						$ 83,640.00
3.2 Accounts receivable $680000
Less: allowance needed (uncollectible accounts) $90640
Net accounts receivable $589360
The amount of $589360 will be shown under current assets.