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 $592,000 and the allowance account had a credit balance of $56,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	592,000
Credit sales		2,710,000
Collections		(2,573,000	)
Write-offs		(48,000	)
Ending balance	$	681,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	415,000	4	%
61−90 days		98,000	12
91−120 days		58,000	28
Over 120 days		110,000	39
Total	$	681,000

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 balan

Answer 1

1)	Accounting titles & explanations				Debit	Credit
	Bad debts expense				54200
	allowance for uncollectible accounts					54,200
	(2,710,000*2%)
	Allowance for uncollectible accounts				48,000
	Account receivable					48,000
					Estimated
2)	Age group		amount	%	bad debts
	0--60		415,000	4%	16600
	61--90 days		98,000	12%	11760
	91---120 days		58,000	28%	16240
	over 120 days		110,000	39%	42900
	total		681,000		87500
	Bad debts expense				25,300
	allowance for uncollectible accounts					25,300
	87500-(56000+54200-48000)
3-a)	total bad detbs expense for the year 2018
	79,500
3-b)	Balance Sheet
	Current assets
	Account receivable				681,000
	less Allowance for uncollectible accounts				87,500
	Net account receivable				593,500