Question

3.

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 2% 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 2020, accounts receivable were $584,000 and the allowance account had a credit balance of $48,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	584,000
Credit sales		2,670,000
Collections		(2,533,000	)
Write-offs		(44,000	)
Ending balance	$	677,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	395,000	5	%
61−90 days		94,000	14
91−120 days		54,000	24
Over 120 days		134,000	35
Total	$	677,000

Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. Prepare the necessary year-end adjusting entry for bad debt expense.
3-a. What is total bad debt expense for 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?

Answer 1

1
	Debit	Credit
Bad debt expense	53400		=2670000*2%
Allowance for uncollectible accounts		53400
Allowance for uncollectible accounts	44000
Accounts receivable		44000
2
	Debit	Credit
Bad debt expense	35370
Allowance for uncollectible accounts		35370
3a
Bad debt expense	88770		=53400+35370
3b
Balance sheet
Current assets:
Accounts receivable (net)	584230		=677000-92770
Workings:
	Amount	% uncollectible	Amount uncollectible
0—60 days	395000	5%	19750
61—90 days	94000	14%	13160
91—120 days	54000	24%	12960
Over 120 days	134000	35%	46900
Total	677000		92770
Beginning balance, Allowance	48000
Add: Monthly bad debt accruals	53400
Deduct: Write-offs	-44000
Unadjusted balance	57400
Required allowance	92770
Required year-end increase in allowance	35370