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 2020, accounts receivable were $594,000 and the allowance account had a credit balance of $58,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	594,000
Credit sales		2,720,000
Collections		(2,583,000	)
Write-offs		(49,000	)
Ending balance	$	682,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	420,000	3	%
61−90 days		90,000	13
91−120 days		59,000	29
Over 120 days		113,000	40
Total	$	682,000

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 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?

Answer 1

1
General Journal	Debit	Credit
Bad debt expense	54400		=2720000*2%
Allowance for uncollectible accounts		54400
Allowance for uncollectible accounts	49000
Accounts receivable		49000
2
General Journal	Debit	Credit
Bad debt expense	23210
Allowance for uncollectible accounts		23210
3a
Bad debt expense	77610		=54400+23210
3b
Balance sheet
Current assets:
Accounts receivable (net)	595390		=682000-86610
Workings:
	Amount	% uncollectible	Amount uncollectible
0—60 days	420000	3%	12600
61—90 days	90000	13%	11700
91—120 days	59000	29%	17110
Over 120 days	113000	40%	45200
Total	682000		86610
Beginning balance, Allowance	58000
Add: Monthly bad debt accruals	54400
Deduct: Write-offs	(49000)
Unadjusted balance	63400
Required allowance	86610
Required year-end increase in allowance	23210