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 $33,000 $ 447,000

During 2021, credit sales were $1,765,000, cash collections from customers $1,845,000, and $38,000 in accounts receivable were written off. In addition, $3,300 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 70 % 5 %
61−90 days 20 15
91−120 days 5 20
Over 120 days 5 40

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:
Bad debt expense is estimated to be 4% of credit sales for the year.
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.
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

1	Date	Account titles			Debit	Credit
	2021	Allowance for uncollectble accounts			38000
		Accounts receivable				38000
		(Accounts receivable written-off)
		Accounts receivable			3300
		Allowance for uncollectble accounts				3300
		(Accounts receivable re-instated)
		Cash			3300
		Accounts receivable				3300
		(Cash collected on re-instated account)
2
a.	Baddebt expense=1765000*4%=$ 70600
	Date	Account titles			Debit	Credit
	Dec 31.	Baddebt expense			70600
		Allowance for uncollectble accounts				70600
		(Baddebt expense recorded)
b.	Estimated balance in allowance for uncollectble accounts=Accounts receivable balance*10%
	Year end accounts receivable balance:
					$	$
	Beginning balance		(447000+33000)			480000
	Add:
	Credit sales					1765000
	Reinstated					3300
						2248300
	Less:
	Written off				38000
	Cash collected		(1845000+3300)		1848300	1886300
	Ending balance					362000
	Estimated balance in allowance for uncollectble accounts=362000*10%=$ 36200
	Current balance in allowance for uncollectble accounts:
						$
	Beginning balance					33000
	Add:Reinstated					3300
						36300
	Less: Accounts written off					38000
	Ending balance					-1700
	Current balance in allowance for uncollectble accounts=$ 1700 debit
	Adjustment to be made=36200+1700=$ 37900
	Date	Account titles			Debit	Credit
	Dec 31.	Baddebt expense			37900
		Allowance for uncollectble accounts				37900
		(Baddebt expense recorded)