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 $598,000 and the allowance account had a credit balance of $62,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	598,000
Credit sales		2,740,000
Collections		(2,603,000	)
Write-offs		(51,000	)
Ending balance	$	684,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	430,000	4	%
61−90 days		92,000	15
91−120 days		61,000	20
Over 120 days		101,000	35
Total	$	684,000

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

solution- 1. Journal Entry
S.No.	Accounts titles and Explanation	Debit	Credit
1	Bad debt expense ($2,740,000*2%)	$54,800.00
	Allowance for un-collectible accounts		$54,800.00
	To record bad debt expense
2	Allowance for un-collectible accounts	$51,000.00
	Accounts receivable		$51,000.00
	To record the write off

solution- 2. Journal Entry
Accounts titles and Explanation	Debit	Credit
Bad debt expense	$12,750.00
Allowance for uncollectible accounts		$12,750.00
To record bad debt expense

Working Note -1 Statement showing Estimated uncollected accounts
Details	Total Amount (A)	Percentage uncollectible (%) (B)	Allowance for doubtful accounts (AXC)
0–60 days	$430,000.00	4%	$17,200.00
61–90 days	$92,000.00	15%	$13,800.00
91–120 days	$61,000.00	20%	$12,200.00
Over 120 days	$101,000.00	35%	$35,350.00
	$684,000.00		$78,550.00

Working Note-2 Computation of estimated bad debt expense-
Detail	Amount
Beg Bal	$62,000.00
Add:Bad Debt for month	$54,800.00
Less: Write offs made	-$51,000.00
Balance	$65,800.00
Less: Estimated allowance	-$78,550.00
increase in allowance by	$12,750.00

3. a Computation of Total Bad Debt Expense
Monthly Bad Debt Expense	$54,800.00
Increase in Allowance	$12,750.00
Total Bad Debt Expense	$67,550.00

3b. Balance Sheet ( Partial)
	Amount	Amount
Assets:
Current assets:
Accounts receivable	$684,000.00
Less: Allowance for bad debts	-$78,550.00	$605,450.00