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 2020 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $41,000	$	487,000

During 2021, credit sales were $1,805,000, cash collections from customers $1,885,000, and $50,000 in accounts receivable were written off. In addition, $4,100 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:

	Percentage of Year-End		Percent
Age Group	Receivables in Group		Uncollectible
0−60 days	65	%	4	%
61−90 days	15		10
91−120 days	15		30
Over 120 days	5		50

Required:
1. Prepare summary journal entries to account for the 2021 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:

1. Bad debt expense is estimated to be 3% of credit sales for the year.
2. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
3. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. 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 2021 balance sheet?

Answer 1

	Accounts Title and Explanation	Debit	Credit
1)	Allowance for Uncollectible Accounts	50,000
	Accounts Receivable		50,000
	(To record write off of uncollectible accounts)
	Accounts Receivable	4,100
	Allowance for Uncollectible accounts	4,100
	(To record reinstatement of accounts collected)
	Cash	4,100
	Accounts Receivable		4,100
	(To record collecetion)
2-a)	Bad Debt Expense	54,150		(1805000*3%)
	Allowance for Uncollectible accounts	54,150	(1805000*3%)
	(To record bad debt exp)
2-b)	Bad Debt Expense	40600		(35700 - (-4900))
	Allowance for Uncollectible accounts	40,600	(35700 - (-4900))
	(To record bad debt exp)
	Note 1: Calculation of ending accounts receivable
	Beg	487,000
	Add: Credit sale	1,805,000
	Less: Collected	(1,885,000)
	Less: Written off	(50,000)
	Add: reinstated	4,100
	Less: collecetd	(4,100)
	Ending accounts receivable	357,000
	Allowance for uncollectible required	35,700	(10% of 357000)
	Note 2: Calculation of ending uncollectible account balance
	Beg	41,000
	Less: Written off	(50,000)
	Add: reinstated	4,100
	Ending accounts receivable	(4,900)
2-c)	Bad Debt Expense	44,527
	Allowance for Uncollectible accounts	44,527
	(To record bad debt exp)
	Note 3:
	Age Group	Amount	% uncollectible	Allowances for uncollectible accounts
	0-60 days	232,050.0	4%	9282
	61-90 days	53,550.0	10%	5355
	91-120 days	53,550.0	30%	16065
	Over 120 days	17,850.0	50%	8925
	Total	357,000		39627
	Allowance Required	39,627
	Less: Already have balance	(4,900)
	More to be debit to expense	44,527
3-a	Net amount of accounts receivable	307,750
3-b	Net amount of accounts receivable	321,300
3-c	Net amount of accounts receivable	317,373