Question

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2020, accounts receivable were $578,000 and the allowance account had a credit balance of $42,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	578,000
Credit sales		2,640,000
Collections		(2,503,000	)
Write-offs		(41,000	)
Ending balance	$	674,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	380,000	5	%
61−90 days		100,000	11
91−120 days		51,000	21
Over 120 days		143,000	32
Total	$	674,000

Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. Prepare the necessary year-end adjusting entry for bad debt expense.
3-a. What is total bad debt expense for 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?

Answer 1

1
General Journal	Debit	Credit
Bad debt expense	79200		=2640000*3%
Allowance for uncollectible accounts		79200
Allowance for uncollectible accounts	41000
Accounts receivable		41000
2
General Journal	Debit	Credit
Bad debt expense	6270
Allowance for uncollectible accounts		6270
3a
Bad debt expense	85470		=79200+6270
3b
Balance sheet
Current assets:
Accounts receivable (net)	587530		=674000-86470
Workings:
	Amount	% uncollectible	Amount uncollectible
0—60 days	380000	5%	19000
61—90 days	100000	11%	11000
91—120 days	51000	21%	10710
Over 120 days	143000	32%	45760
Total	674000		86470
Beginning balance, Allowance	42000
Add: Monthly bad debt accruals	79200
Deduct: Write-offs	-41000
Unadjusted balance	80200
Required allowance	86470
Required year-end increase in allowance	6270