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 2017 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $30,000	$432,000

During 2018, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:

	Percentage of Year-End		Percent
Age Group	Receivables in Group		Uncollectible
0–60 days	65	%	4	%
61–90 days	20		15
91–120 days	10		25
Over 120 days	5		40

Required:
1. Prepare summary journal entries to account for the 2018 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:

Bad debt expense is estimated to be 3% of credit sales for the year.

Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.

Bad debt expense is estimated by computing net realizable value of the receivables. 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 2018 balance sheet?

Answer 1

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Part -1
Date	Account	Debit	Credit
a	Allowance for Doubtful Accounts	$                                   35,000
	Accounts Receivable		$                  35,000
	(to reocrd write off)
b1	Accounts Receivable	$                                     3,000
	Allowance for Doubtful Accounts		$                    3,000
	(to restate previously w/off)
b2	Cash	$                                     3,000
	Accounts Receivable		$                    3,000
	(to record collection from w/off account)
Part -2a
	Bad Debt Expense	$                                   52,500
	Allowance for Doubtful Accounts		$                  52,500
	(1750000*3%)
	Allowance for doubtful accounts:
	Beginning Allowance		$                -30,000	Credit
	Less: Write Off		$                  35,000	Debit
	Add: Restate of previously write off		$                   -3,000	Credit
	add: Bad Debt Recorded		$                -52,500	Credit
	Ending Balance of Allowance before adj		$                -50,500	Credit
Part -2b
	Receivable:
	Beginning Accounts Receivable (432000+30000)		$                462,000
	Add: Credit Sale		$            1,750,000
	Less: Collection		$          -1,830,000
	Less: Write Off		$                -35,000
	Ending Balance of Receivable before adj		$                347,000
	Ending Balance of allowance required	10%*347000	$                  34,700
	Allowance for doubtful accounts:
	Beginning Allowance		$                -30,000	Credit
	Less: Write Off		$                  35,000	Debit
	Add: Restate of previously write off		$                   -3,000	Credit
	Ending Balance of Allowance before adj		$                    2,000	Debit
	Less:Required Month End Balance		$                -34,700	Credit
	Bad Debt expense to be recorded		$                  36,700
	Bad Debt Expense	$                                   36,700
	Allowance for Doubtful Accounts		$                  36,700
Part -2c
	A	B	C
Age Group	Receivables in Group	Revevable=347000*A%	% Uncollectible	Uncollectible=B*C%
0–60 days	65	225,550	4	$                          9,022
61–90 days	20	69,400	15	$                        10,410
91–120 days	10	34,700	25	$                          8,675
Over 120 days	5	17,350	40	$                          6,940
Total		$                                347,000		$                        35,047
	Allowance for doubtful accounts:
	Beginning Allowance		$                -30,000	Credit
	Less: Write Off		$                  35,000	Debit
	Add: Restate of previously write off		$                   -3,000	Credit
	Ending Balance of Allowance before adj		$                    2,000	Debit
	Less:Required Month End Balance		$                -35,047	Credit
	Bad Debt expense to be recorded		$                  37,047
	Bad Debt Expense	$                                   37,047
	Allowance for Doubtful Accounts		$                  37,047
Part -3
a	Accounts Receivable	$                                347,000
	Less: Allowance for doubtful acccounts	$                                 -50,500
	Accounts Receivable,Net		$                296,500
b	Accounts Receivable	$                                347,000
	Less: Allowance for doubtful acccounts	$                                 -34,700
	Accounts Receivable,Net		$                312,300
c	Accounts Receivable	$                                347,000
	Less: Allowance for doubtful acccounts	$                                 -35,047
	Accounts Receivable,Net		$                311,953