Question

Sheffield Corp. had record sales in 2020. It began 2020 with an Accounts Receivable balance of $500,000 and an Allowance for Doubtful Accounts of $35,000. Sheffield recognized credit sales during the year of $6,705,000 and made monthly adjusting entries equal to 0.5% of each month’s credit sales to recognize bad debt expense. Also during the year, the company wrote off $35,300 of accounts that were deemed to be uncollectible, although one customer whose $4,700 account had been written off surprised management by paying the amount in full in late September. Including this surprise receipt, $6,538,000 cash was collected on account in 2020. To assess the reasonableness of the allowance for doubtful accounts, the controller prepared the following aged listing of the receivables at December 31, 2020: Days Account Outstanding Amount Probability of Collection Less than 16 days $353,200 97% Between 16 and 30 days 124,000 91% Between 31 and 45 days 76,000 80% Between 46 and 60 days 38,800 71% Between 61 and 75 days 19,800 51% Over 75 days 24,600 0% $636,400

Your answer is correct. Reconcile the 2020 opening balance in Accounts Receivable to the $636,400 ending balance on the controller’s aged listing. Accounts Receivable Reconciliation Cash collected on accountCredit sales in yearEnding balanceOpening balanceAccounts written offReinstatement of account collected $ Cash collected on accountEnding balanceOpening balanceReinstatement of account collectedCredit sales in yearAccounts written off Reinstatement of account collectedCash collected on accountOpening balanceAccounts written offEnding balanceCredit sales in year Reinstatement of account collectedOpening balanceAccounts written offCash collected on accountEnding balanceCredit sales in year Cash collected on accountCredit sales in yearEnding balanceAccounts written offOpening balanceReinstatement of account collected Credit sales in yearOpening balanceCash collected on accountReinstatement of account collectedEnding balanceAccounts written off $ SHOW LIST OF ACCOUNTS LINK TO TEXT

Your answer is partially correct. Try again. Prepare the adjusting entry to bring the Allowance for Doubtful Accounts to its proper balance at year end. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter "0" for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31 SHOW LIST OF ACCOUNTS LINK TO TEXT

Your answer is incorrect. Try again. Show how accounts receivable would be presented on the December 31, 2020 statement of financial position. Sheffield Corp. Statement of financial position (Partial) $ AddLess : (net) $ SHOW LIST OF ACCOUNTS LINK TO TEXT

Your answer is incorrect. Try again. What is the dollar effect of the year-end bad debt adjustment on the before-tax income? The year-end bad debt adjustment would increasedecrease before-tax income $ .

Answer 1

Accounts Receivable Reconciliation
Opening balance	500000
Credit sales in year	6705000
Accounts written off	-35300
Reinstatement of account collected	4700
Cash collected on account	-6538000
Ending balance	636400

Working:

Days Account Outstanding	Amount	Probability of Uncollectibility	Uncollectible Amount
Less than 16 days	353200	3%	10596
Between 16 and 30 days	124000	9%	11160
Between 31 and 45 days	76000	20%	15200
Between 46 and 60 days	38800	29%	11252
Between 61 and 75 days	19800	49%	9702
Over 75 days	24600	100%	24600
Total	636400		82510

Allowance for Doubtful Accounts
		Beginning balance 1/1/2020	35000
Write-off	35300	Monthly adj. (0.5% x $6705000)	33525
		Re-instatement	4700
		Bad debts expense (adj.)	44585
		Ending balance 12/31/2020	82510

Adjusting entry:

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Bad debts expense	44585
	Allowance for doubtful accounts		44585
	(To record the adjusting entry)

Sheffield Corporation
Statement of Financial Position (Partial)
Accounts receivable	636400
Less: Allowance for doubtful accounts	82510
Accounts receivable (net)	553890

The year-end bad debt adjustment would decrease before-tax income $44585.