Question

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Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for...

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 $37,000 $ 467,000

During 2021, credit sales were $1,785,000, cash collections from customers $1,865,000, and $42,000 in accounts receivable were written off. In addition, $3,700 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 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 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 2% 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?
  

If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No Event General Journal Debit Credit
1 1 Allowance for uncollectible accountsselected answer correct 42,000selected answer correct not attempted
Accounts receivableselected answer correct not attempted 42,000selected answer correct
2 2 Accounts receivableselected answer correct 3,700selected answer correct not attempted
Allowance for uncollectible accountsselected answer correct not attempted 3,700selected answer correct
3 3 Cashselected answer correct 3,700selected answer correct not attempted
Accounts receivableselected answer correct not attempted 3,700selected answer correct

Prepare the year-end adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No Transaction General Journal Debit Credit
1 a. Bad debt expenseselected answer correct 35,700selected answer correct not attempted
Allowance for uncollectible accountsselected answer correct not attempted 35,700selected answer correct
2 b. Bad debt expenseselected answer correct 71,400selected answer incorrect not attempted
Allowance for uncollectible accountsselected answer correct not attempted 71,400selected answer incorrect
3 c. Bad debt expenseselected answer correct not attempted not attempted
Allowance for uncollectible accountsselected answer correct not attempted not attempted

For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?

Net account receivable reported
a. not attempted
b. not attempted
c. not attempted

Solutions

Expert Solution

1) Journal entries
Accouting titles & Explanations Debit Credit
Allowance for uncollectible accounts 42,000
Account receivable 42,000
Account receivbale 3,700
allowance for uncollectible accouts 3,700
Cash 3,700
Account receivable 3,700
2) Journal entries
Accouting titles & Explanations Debit Credit
a) Bad debts expense 35700
Allowance for uncollectible accounts 35,700
(1,785,000*2%)
b) Bad debts expense 39,500
Allowance for uncollectible accounts 39,500
(382000*10%+1300)
T-account
Account receivable Allowance for uncollectible
openint 504000 Cash 1,865,000 written off 42,000 opening 37,000
Sales 1,785,000 writtehn off 42,000 reinstated 3,700
restated 3,700 collected 3,700
bal 1,300
End bal 382,000
c) Bad debts expense 46,376
Allowance for uncollectible accounts 46,376
(45076+1300)
Age grouo %
0--60 229200 3% 6876
61--90 38200 5% 1910
91----120 76400 25% 19100
over 120 38200 45% 17190
45076
3) net account
receivable reported
a 347,600
b 343,800
c 336,924

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