Question

Johnson Company calculates its allowance for uncollectible accounts as 20% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $20,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $333,500, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 36,600. Required: 1. What was the balance in gross accounts receivable as of 12/31/2020? 2. What is the journal entry that should Johnson record to recognize bad debt expense for 2021? 3. Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2021. Determine the amount of accounts receivable written off during 2021. 4. If Johnson instead used the direct write-off method, what would bad debt expense be for 2021? Thank you!

Answer 1

1)
Ending balance in gross accounts receivable               = Beginning allowance for uncollectible accounts balance / Percentage of Uncollectible            =   $20,000 / 20%            = $100,000
Ending balance in gross accounts receivable      = $100,000
2) Journal entry to record the Bad debt expense
Date	Account titles and Explanation	Debit (in $)	Credit (in $)
2021	Bad debt expense ($333,500 x 20% + $36,600)	$103,300
	Allowance for uncollectible accounts		$103,300
	(To record the Bad debt expense )
3)
Accounts receivable written off                   =   Allowance Account balance(Debit Balance ) at Beginning                                  (-) Allowance account Balance (Credit Balance) at Ending                  =    $36,600 (-) ($20,000)                  =    $56,600
Amount of Accounts receivable written off    =$56,600
4)
Under direct write off method, Bad debt expense for 2021    =   $56,600 (Accounts receivable written off )
Bad debt expense for 2021    =   $56,600