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 2020 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $50,000	$	532,000

During 2021, credit sales were $1,850,000, cash collections from customers $1,930,000, and $59,000 in accounts receivable were written off. In addition, $5,000 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	65	%	4	%
61−90 days	15		10
91−120 days	15		30
Over 120 days	5		50

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 3% 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?

Answer 1

Ques 1
Write Offs
General Journal	Debit	Credit
Allowance for uncollectible accounts	59000
Accounts receivable		59000
Collection:
Accounts receivable	5000
Allowance for uncollectible accounts		5000
Cash	5000
Accounts receivable		5000

Ques 2
a.
Bad debt expense	55500
Allowance for uncollectible accounts		55500
(1850000*3%)
b.
First we need balance to accounts receivable
Opening Balance	$ 532,000
Add:credit sales	$               1,850,000
Less:cash collections	$            (1,930,000)
Less:write offs	$ (59,000)
Closing Balance	$ 393,000
Calculation of Unadjusted balance of uncollectables
Beginning balance	$ 50,000
Less: Writeoff	$ (59,000)
Add: Write back	$ 5,000
unadjusted balance of uncollectables	$ (4,000)	-ve represents debit balance
Now we record the entry
Bad debt expense	43300
Allowance for uncollectible accounts		43300
(393000*10%+4000)
c.
0-60 days	393000*65%*4%	10218
61-90 days	393000*15%*10%	5895
91-120 days	393000*15%*30%	17685
over 120 days	393000*5%*50%	9825
total		43623
Now we record the entry
Bad debt expense	47623
Allowance for uncollectible accounts		47623
(43623+4000)
Ques 3
a.393000-(55500-4000)	$ 341,500
b.393000-(43300-4000)	$ 353,300
c.393000-47623	$ 345,377