Question

The Lynbrook Rentals Company offers credit terms to all of its customers. At the end of 2019, accounts receivables totaled $3,400,000. During 2020 credit sales were $2,100,000 and cash collections from customers were $3,700,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2020 and $70,000 in receivables were written off during the year as uncollectible. In addition, $20,000 was collected from a customer whose account was written off in 2019. The allowance for uncollectible accounts is determined by an ageing of accounts receivable. An aging of accounts receivable at December 31, 2020, reveals the following:

Age Group 0-60 days 61-90 days 91-120 days Over 120 days

Required:

Percentage of Year-end Percent Receivable in Group Uncollectible

55% 5% 30 15 10 45 5 60

a. Prepare journal entries to record the write-off of receivables, collection of the accounts receivable previously written off, and the year-end adjusting entry for bad debt expense.
b. Show how accounts receivables would be presented in the 2020 year-end balance sheet?

Answer 1

Part A

Journal entries
Event	General Journal	Debit	Credit
1	Accounts receivable	$        2,100,000
	Sales revenue		$        2,100,000
	(To record sales revenue on account.)
2	Cash	$        3,700,000
	Accounts receivable		$        3,700,000
	To record Collection on account.
3	Allowance for Doubtful Accounts	$              70,000
	Accounts receivable		$              70,000
	To record account write off.
4A	Accounts receivable	$              20,000
	Allowance for Doubtful Accounts		$              20,000
	To record cash received from write off account.
4B	Cash	$              20,000
	Accounts receivable		$              20,000
	To record Collection on account.
Adjusting entry	Bad debt expense	$            263,175
	Allowance for Doubtful Accounts		$            263,175
	(To record bad debts expense.)

Event	Accounts receivable	Allowance for Doubtful Accounts
Beg.	$    3,400,000	$        42,000
1	$    2,100,000
2	$ (3,700,000)
3	$        (70,000)	$     (70,000)
4A	$          20,000	$        20,000
4B	$        (20,000)
Total	$    1,730,000	$        (8,000)

Category	Total Accounts receivable	Multiply: Accounts receivable Percentage	Accounts receivable
0-60 days	$    1,730,000	55%	$        951,500
61-90 days	$    1,730,000	30%	$        519,000
91-120 days	$    1,730,000	10%	$        173,000
Over 120 days	$    1,730,000	5%	$          86,500
Total			$    1,730,000

Category	Accounts receivable	Multiply: Estimated Loss	Allowance for Doubtful Accounts
0-60 days	$        951,500	5%	$          47,575
61-90 days	$        519,000	15%	$          77,850
91-120 days	$        173,000	45%	$          77,850
Over 120 days	$          86,500	60%	$          51,900
Allowance for Doubtful Accounts at Dec 31, 2020			$        255,175

Allowance of doubtful account After Adjustment	$        255,175
Add: Allowance of doubtful account before Adjustment (Debit balance Added)	$            8,000
Adjustment for Bad debts expense			$        263,175

Part B

Lynbrook Rentals Company
Partial Balance sheet
At December 31, 2020
Assets
Current Assets
Accounts receivable	$        1,730,000
Less: Allowance for Doubtful Accounts	$            255,175
Accounts receivable, Net		$        1,474,825
Accounts receivables balance reported on the balance sheet		$        1,474,825