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 2017 balance sheet disclosed the following:

Current assets:

Receivables, net of allowance for uncollectible accounts of $33,000 $ 447,000

During 2018, 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 2017. An aging of accounts receivable at December 31, 2018, 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 2018 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 computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by computing net realizable value of the receivables. 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 2018 balance sheet?

Answer 1

Ans 1
Tran	General journal	Dr	Cr
1	Allowance for Uncollectible accounts	$38,000
	Accounts Receivable		$38,000
	(account receivable written off)
2	Accounts Receivable	$3,300
	Allowance for Uncollectible accounts		$3,300
	(record collection of receivable previously written off)
	Cash	$3,300
	Accounts Receivable		$3,300
ans 2
2a	Bad debt expenses	70600
dec 31 2017	Allowance for Uncollectible accounts		70600
	(1765000*4%)
2b
dec 31 2017	Bad debt expenses	37900
	Allowance for Uncollectible accounts		37900
	Gross Opening accounts receivable	480000
	Add: credit sales	1765000
	Less: collection	-1845000
	Less: written off	-38000
	Balance	362000
	10% of it	36200
	Add: Dr balance of allowance account	1700
	(33000-38000+3300)
	Bad debt expenses	37900
Age group	% of year e nd balances		Amt of accounts rec	% of uncollectible	Estimated amt
0-60 days	70%	362000	253400	5%	12670
61-90 days	20%	362000	72400	15%	10860
91-120 days	5%	362000	18100	20%	3620
over 120 days	5%	362000	18100	40%	7240
				Total	34390
			Add: Dr balance of allowance account		1700
				Bad debt exp	36090
2c	Bad debt expenses	36090
	Allowance for Uncollectible accounts		36090
ans 3
	Net account receivable
a	327500
	362000-36200+1700
b	327500
	362000-36200+1700
c	329310
	362000-34390+1700