Question

Please answer each part.

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 2017, accounts receivable were $608,000 and the allowance account had a credit balance of $72,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	608,000
Credit sales		2,790,000
Collections		(2,653,000	)
Write-offs		(56,000	)
Ending balance	$	689,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	455,000	5	%
61–90 days		76,000	14
91–120 days		66,000	25
Over 120 days		92,000	40
Total	$	689,000

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 2018?
3-b. How would accounts receivable appear in the 2018 balance sheet?

Answer 1

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Part -1
Date/Event	Account	Debit	Credit
1	Bad Debt Expense (2790000*2%)	$             55,800
	Allowance for Uncollectible Accounts		$ 55,800
2	Allowance for Uncollectible Accounts	$             56,000
	Accounts Receivable		$ 56,000
Part -2
Date/Event	Account	Debit	Credit
1	Bad Debt Expense	$             14,890
	Allowance for Uncollectible Accounts		$ 14,890
Age Group	Amount	Percent	Estimated
		Uncollectible	Allowance
0—60 days	$                                                               455,000	5%	$ 22,750
61—90 days	$                                                                  76,000	14%	$ 10,640
91—120 days	$                                                                  66,000	25%	$ 16,500
Over 120 days	$                                                                  92,000	40%	$ 36,800
	$                                                               689,000		$ 86,690
Allowance for uncollectible accounts:
Beginning balance		$             72,000
Add: Monthly bad debt accruals		$             55,800
Deduct: Write-offs		$            -56,000
Balance before year-end adjustment		$             71,800
Required allowance (determined above)		$             86,690
Required year-end increase in allowance		$             14,890
Part -3a.
Total Bad Debt Expense	14890+55800	$             70,690
Part -3b.
Accounts Receivable	$                                                               689,000
Less: Allowance for uncollectible account	$                                                                -86,690
Accounts Receivable, Net		$           602,310