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 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 $592,000 and the allowance account had a credit balance of $56,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	592,000
Credit sales		2,710,000
Collections		(2,573,000	)
Write-offs		(48,000	)
Ending balance	$	681,000

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

req1-

1. Record a summary entry to record the monthly bad debt accrual.

2. Record a summary entry to record the 2021 write-offs.

req 2-  

1. Record the year-end adjusting entry for bad debt expense.

req 3a-

What is total bad debt expense for 2021?

req 3b-

How would accounts receivable appear in the 2021 balance sheet?

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	415,000	4	%
61−90 days		98,000	12
91−120 days		58,000	28
Over 120 days		110,000	39
Total	$	681,000

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

*) Answer

1)

Date	Particulars	Dr	Cr
	Bad Debt Expenses A/C (2%*2710000)	54,200
	Allowance for Uncollectable A/C		54,200
	(Monthly Bad Debt Expense)
	Allowance for Uncollectable A/C	48,000
	Accounts Receivable A/C		48,000
	(Write Off of uncollectable Receivable)

2)

Date	Particulars	Dr	Cr
	Bad Debt Expense A/C	25,300*
	Allowance for Uncollectable A/C		25,300*

Year-end required allowance for uncollectable accounts
Age Group	Amount	% Uncollectable	Estimated Allowance
0-60	4,15,000	4	16600
61-90	98,000	12	11760
91-120	58,000	28	16240
Over 120	1,10,000	39	42900
	6,81,000		87500

*)

Allowance For Uncollectable Accounts
Beginning Balance	56,000
(+) Monthly bad debts accruals	54,200
(-) Write offs	-48,000
Balance Before Year-end adjustments	62,200
Required Balance Determined	87,500
Required Year-end increase in allowance	25,300*

3)

Bad debt expense for 2021
Monthly Accruals	54,200
Year- end Adjustments	54,200
	1,08,400

Balance sheet:

Accounts Receivable, Net of 87,500 allowance for uncollectable accounts (681000-87500)

593,500