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 3% 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 2015, accounts receivable were $590,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2016 was as follows: Beginning balance $ 590,000 Credit sales 2,700,000 Collections (2,563,000) Write-offs (47,000) Ending balance $ 680,000 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary Age Group Amount Percent Uncollectible 0–60 days $ 410,000 5 % 61–90 days 97,000 11 91–120 days 57,000 27 Over 120 days 116,000 38 Total $ 680,000 Required: 1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Prepare the necessary year-end adjusting entry for bad debt expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 3-1. What is total bad debt expense for 2016? 3-2. How would accounts receivable appear in the 2016 balance sheet?

Answer 1

Ref	Accounts title	Dr.	Cr.
1	Bad debt expense [2,700,000*3%]	81000
	To allowance for uncollectible accounts		81000
	Allowance for uncollectible accounts	47,000
	To accounts receivable		47,000
2.	Bad debts expenses	2640
	To allowance for uncollectible accounts		2640
	Note:- Ending allowance for uncollectible accounts balance - ending balance before adjustments =90640 - [$54,000 +81000-47,000 ] =90640 - 88000 = 2640

Note:-

Age Group Amount Percent Uncollectible Allowances

0–60 days $ 410,000 5 % 20500

61–90 days 97,000 11 % 10670

91–120 days 57,000 27% 15390

Over 120 days 116,000 38% 44080

Total $ 680,000 90640

3.   total bad debt expense for 2016 = 81000 + 2640

=83640

4.   accounts receivable appear in the 2016 balance sheet

Accounts receivable =  $ 680,000

less: Allowance for uncollectible accounts =   (90640)   

$589360