Question

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Sell on Credit Corp.
Accounts receivable — Aging report
As at December 31, 20X7
Days outstanding	0-30	31-60	61-90	91 and over	Total
All Design Inc.	38,600				38,600
Brio Developments	26,400	15,900			42,300
Cremore Construction				5,700	5,700
Darius Inc.	131,500		3,000		134,500
Everything Rentals	86,500	12,300			98,800
Frieda's HVAC		52,500			52,500
Great Big Equipment	8,700	1,300			10,000
Hari Technical Design	16,700				16,700
Inland Surveyors Inc.	3,700				3,700
Klampett Fashions	13,600	4,200			17,800
Lomar Fine Furniture	85,000			4,800	89,800
Overland Paint & Tech	9,800				9,800
Prime Flooring	49,300		850		50,150
Relay Contractors	13,500	9,800			23,300
Stay-Play Vacation Resort	96,000				96,000
Underwood Contractors	57,500			3,100	60,600
	636,800	96,000	3,850	13,600	750,250

Sell on Credit Corp.’s (SCC) aged accounts receivable list is available in Excel in the Project 1 Data file.

Other pertinent facts include the following:

• SCC’s balance in its “allowance for doubtful accounts” account on January 1, 20X7, was a $4,600 credit.

• On March 31, 20X7, SCC unexpectedly collected a $1,950 accounts receivable due from KML Corp. that it wrote off in 20X6.

• During the year, SCC wrote off a total of $3,800 in uncollectable accounts.

• SCC uses a balance sheet approach (aging method) to estimate its uncollectable accounts.

Based on historical experience, SCC provides for bad debts as follows:

Aging period Days outstanding 0-30 31-60 61-90 > 91 Historical percent loss 1% 5% 10% 30%

Required: a) Prepare all journal entries required during the year and at year end to properly reflect SCC’s accounting for its bad debt expense/allowance for doubtful accounts. Ensure that your journal entry(ies) includes an explanation as to the nature of the transaction. Intermediate Financial Reporting 1 Project 1 4 / 9 b) Use a T-account to reconcile the change in the opening (January 1, 20X7) and closing (December 31, 20X7) balances in the allowance for doubtful accounts. Ensure that the reconciliation includes all the journal entries you prepared in part

Answer 1

Days	0-30 days	31-60 days	61-90 days	91 and over	Total
Amount due on Dec 31, 20X7	636,800	96,000	3,850	13,600	750,250
% of estimated bad-debts	1%	5%	10%	30%
Year end Provision required	6,368	4,800	385	4,080	15,633

Closing Allowance for doubtful accounts required	15,633
Less: Opening Balance	(4,600)
Add: bad-debts during the year	3,800
Less: Bad-debts reverse	(1,950)
Bad-debts Expense	12,883

Accounting entries:

Accounts Title	Debit	Credit
Allowance for doubtful accounts	3,800
Debtors		3,800
(For write off debtors during the year)
Cash	1,950
Allowance for doubtful accounts		1,950
(Collection against already write off)
Bad-debts Expense	12,833
Allowance for doubtful accounts		12,833
(For creating provision)

T shape ledger:

Allowance for doubtful accounts
Debit	Amount in $	Credit	Amount in $
Debtors	3,800	Opening Balance	4,600
Closing Balance	15,583	Cash	1,950
		Bad-debts Expense	12,833
Total	19,383	Total	19,383