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 $586,000 and the allowance account had a credit balance of $50,000. Accounts receivable activity for 2021 was as follows: Beginning balance $ 586,000 Credit sales 2,680,000 Collections (2,543,000 ) Write-offs (45,000 ) Ending balance $ 678,000 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary Age Group Amount Percent Uncollectible 0−60 days $ 400,000 4 % 61−90 days 95,000 15 91−120 days 55,000 25 Over 120 days 128,000 36 Total $ 678,000 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

Solutions: