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 2% 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 $606,000 and the allowance account had a credit balance of $70,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	606,000
Credit sales		2,780,000
Collections		(2,643,000	)
Write-offs		(55,000	)
Ending balance	$	688,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	450,000	3	%
61−90 days		74,000	13
91−120 days		65,000	24
Over 120 days		99,000	39
Total	$	688,000

Required:

1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.

	Event General Journal Debit Credit 1

	Event General Journal Debit Credit 2

2. Prepare the necessary year-end adjusting entry for bad debt expense.

	Event General Journal Debit Credit 1

3-a. What is total bad debt expense for 2021?

	Bad debt expense

3-b. How would accounts receivable appear in the 2021 balance sheet?

	Balance Sheet (partial) Current assets:    Accounts receivable (net)

Answer 1

solutin- 1. Journa Entry
S.No.	Accounts titles and Explanation	Debit	Credit
1	Bad debt expense ($2,780,000*2%)	$55,600.00
	Allowance for uncollectible accounts		$55,600.00
	To record bad debt expense
2	Allowance for uncollectible accounts	$55,000.00
	Accounts receivable		$55,000.00
	To record the write off

solution- 2. Journal Entry
Accounts titles and Explanation	Debit	Credit
Bad debt expense	$6,730.00
Allowance for uncollectible accounts ( W/ No-2)		$6,730.00
To record bad debt expense

Working Note -1 Statement showing Estimated uncollected accounts
Details	Total Amount (A)	Percentage uncollectible (%) (B)	Allowance for doubtful accounts (AXC)
0–60 days	$450,000.00	3%	$13,500.00
61–90 days	$74,000.00	13%	$9,620.00
91–120 days	$65,000.00	24%	$15,600.00
Over 120 days	$99,000.00	39%	$38,610.00
	$688,000.00		$77,330.00

Working Note-2 Computation of estimated bad debt expense-
Detail	Amount
Beg Bal	$70,000.00
Add:Bad Debt for month	$55,600.00
Less: Write offs made	-$55,000.00
Balance	$70,600.00
Less: Estimated allowance (w/N-1)	-$77,330.00
increase in allownace by	$6,730.00

3. a Computation of Total Bad Debt Expense
Monthly Bad Debt Expense	$55,600.00
Increase in Allowance	$6,730.00
Total Bad Debt Expense	$62,330.00

3b. Balance Sheet ( Partial)
	Amount	Amount
Assets:
Current assets:
Accounts receivable	$688,000.00
Less: Allowance for bad debts	-$77,330.00	$610,670.00