Question

In: Accounting

olorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts...

olorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $655,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $38,000 at the beginning of 2021 and $24,000 in receivables were written off during the year as uncollectible. Also, $1,800 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 15% to accounts receivable at the end of the year.

Required:

1. Prepare journal entries to record the write-off of receivables, the collection of $1,800 for previously written off receivables, and the year-end adjusting entry for bad debt expense.
2. How would accounts receivable be shown in the 2021 year-end balance sheet?

Solutions

Expert Solution

Answer:

1.)

Date Particulars Debit ($) Credit ($)
Allowance for Uncollectible accounts 24000
Accounts Receivable 24000
(To record writeoff receivables)
Accounts receivable 1800
Allowance for Uncollectible Accounts 1800
Cash 1800
Accounts receivable 1800
(To record baddebts recovered)

Calculation of Amount to be recognised as baddebts:

Opening balance of allowance 38000
Less: write off dduring the year (24000)
14000
Add: Recovery from baddebts 1800
15800
Estimation for Allowance (15% x 655000) 98250
Amount to be Adjusted 82450

Adjusted Entry at the end of the year

Particulars Debit ($) Credit ($)
Bad debt Expense 82450
Allowance for uncollectible Accounts 82450
(To record adjustment to allowance for uncollectible accounts)

2.)Disclosure of Accounts Receivable at the year end:

Accounts receivable 655000
Less: Allowance for uncollectible accounts (98250)
556750

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