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 2017, accounts receivable were $606,000 and the allowance account had a credit balance of $70,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	606,000
Credit sales		2,780,000
Collections		(2,643,000	)
Write-offs		(55,000	)
Ending balance	$	688,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	450,000	3	%
61–90 days		74,000	13
91–120 days		65,000	24
Over 120 days		99,000	39
Total	$	688,000

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

1
	Debit	Credit
Bad debt expense	55600		=2780000*2%
Allowance for uncollectible accounts		55600
Allowance for uncollectible accounts	55000
Accounts receivable		55000
2
Bad debt expense	6730
Allowance for uncollectible accounts		6730
3 (a)
Bad debt expense for 2018	62330
3 (b)
Balance sheet
Current assets:
Accounts receivable (net)	610670
Workings:
Age group	Amount	Percent Uncollectible	Estimated Allowance
0-60 days	450000	3%	13500
61-90 days	74000	13%	9620
91-120 days	65000	24%	15600
Over 120 days	99000	39%	38610
Totals	688000		77330
For 2
Allowance for uncollectible accounts:
Beginning balance	70000
Add: Monthly bad debt accruals	55600
Deduct: Write-offs	-55000
Balance before year-end adjustment	70600
Required allowance (determined above)	77330
Required year-end increase in allowance	6730	(77330-70600)
For 3 (a)
Monthly accruals	55600
Year-end adjustment	6730
Total Bad debt expense for 2018	62330
For 3 (b)
Accounts receivable, Gross	688000
Less: Allowance for uncollectible accounts	77330
Accounts receivable, net	610670