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 2017 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $46,000	$	512,000

During 2018, credit sales were $1,830,000, cash collections from customers $1,910,000, and $55,000 in accounts receivable were written off. In addition, $4,600 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:

	Percentage of Year-End		Percent
Age Group	Receivables in Group		Uncollectible
0–60 days	60	%	3	%
61–90 days	10		5
91–120 days	20		25
Over 120 days	10		45

Required:

1. Prepare summary journal entries to account for the 2018 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:

Bad debt expense is estimated to be 2% of credit sales for the year.

Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.

Bad debt expense is estimated by computing net realizable value of the receivables. 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 2018 balance

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
a.	Allowance for Uncollectible Account	55,000.00
	Accounts Receivable		55,000.00
b.	Accounts Receivable	4,600.00
	Allowance for Uncollectible Account		4,600.00
c.	Cash	4,600.00
	Accounts Receivable		4,600.00
Answer 2.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
a.	Bad Debts	36,600.00
	Allowance for Uncollectible Account		36,600.00
	Bad Debts expense = $1,830,000 X 2% = $36,000
b.	Bad Debts	46,700.00
	Allowance for Uncollectible Account		46,700.00
	(See Note b)
c.	Bad Debts	54,314.00
	Allowance for Uncollectible Account		54,314.00
	(See Note c)

Note b.
Accounts Receivable					Allowance for Uncollectible Accounts
Beg. Bal.	558,000.00	1,910,000.00	Cash		Beg. Bal.		46,000.00
Sales	1,830,000.00	55,000.00	Allowance		Accounts Receivable	55,000.00	4,600.00	Accounts Receiavble
Allowance	4,600.00	4,600.00	Cash				46,700.00	Bad debt (Bal. Fig)
End. Bal.	423,000.00				End. Bal.		42,300.00
Allowance For Uncollectible accounts = $423,000 X 10%
Allowance For Uncollectible accounts = $42,300
Note c.
Accounts Receivable					Allowance for Uncollectible Accounts
Beg. Bal.	558,000.00	1,910,000.00	Cash		Beg. Bal.		46,000.00
Sales	1,830,000.00	55,000.00	Allowance		Accounts Receivable	55,000.00	4,600.00	Accounts Receiavble
Allowance	4,600.00	4,600.00	Cash				54,314.00	Bad debt (Bal. Fig)
End. Bal.	423,000.00				End. Bal.		49,914.00

	Days Outstanding				Total
	0-60	61-90	91-120	Over 120
% of Year End receivable	60%	10%	20%	10%
Accounts Receivable	253,800.00	42,300.00	84,600.00	42,300.00	423,000.00
% Uncollectible	3%	5%	25%	45%
Amount Uncollectible	7,614.00	2,115.00	21,150.00	19,035.00	49,914.00
Answer 3.
	Case a.	Case b.	Case c.
Accounts Receivable	423,000.00	423,000.00	423,000.00
Allowance for Uncollectible Account	(36,600.00)	(42,300.00)	(49,914.00)
Net Accounts Receivable	386,400.00	380,700.00	373,086.00