Question

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2020 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $36,000	$	462,000

During 2021, credit sales were $1,780,000, cash collections from customers $1,860,000, and $41,000 in accounts receivable were written off. In addition, $3,600 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:

	Percentage of Year-End		Percent
Age Group	Receivables in Group		Uncollectible
0−60 days	70	%	5	%
61−90 days	20		15
91−120 days	5		20
Over 120 days	5		40

Required:
1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off.
2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:

1. Bad debt expense is estimated to be 4% of credit sales for the year.
2. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
3. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable.

3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
  

Answer 1

1)	Journal entries
	Accouting titles & Explanations				Debit	Credit
	Allowance for uncollectible accounts				41,000
	Account receivable					41,000
	Account receivbale				3,600
	allowance for uncollectible accouts					3,600
	Cash				3,600
	Account receivable					3,600
2)	Journal entries
	Accouting titles & Explanations				Debit	Credit
a)	Bad debts expense				71200
	Allowance for uncollectible accounts					71,200
	(1,780,000*4%)
b)	Bad debts expense				39,100
	Allowance for uncollectible accounts					37,500
	(377000*10%+1400)
	T-account
	Account receivable					Allowance for uncollectible
	openint	498000	Cash	1,860,000		written off	41,000	opening	36,000
	Sales	1,780,000	writtehn off	41,000				reinstated	3,600
	restated	3,600	collected	3,600
						bal	1,400
	End bal	377,000
c)	Bad debts expense				37,215
	Allowance for uncollectible accounts					37,215
	(35815+1400)
	Age grouo			%
	0--60		263900	5%	13195
	61--90		75400	15%	11310
	91----120		18850	20%	3770
	over 120		18850	40%	7540
					35815
3)			net account
			receivable reported
	a		307,200
	b		339,300
	c		341,185