In: Accounting
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 $35,000 | $ | 457,000 |
During 2021, credit sales were $1,775,000, cash collections from customers $1,855,000, and $40,000 in accounts receivable were written off. In addition, $3,500 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 | 65 | % | 4 | % |
61−90 days | 15 | 10 | ||
91−120 days | 15 | 30 | ||
Over 120 days | 5 | 50 | ||
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:
3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1
Record accounts receivable written off during the year 2021.
2
Record entry to reinstate an account receivable previously written off.
3
Record collection of an account receivable previously written off.
Prepare the year-end adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1
Bad debt expense is estimated to be 3% of credit sales for the year.
2
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.
3
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.
For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
|
Solution 1 | |||
Journal Entry 1 - Raintree Cosmetic Company | |||
Event | Particulars | Debit | Credit |
1 | Allowance for doubtful accounts Dr | $40,000 | |
To Accounts receivables | $40,000 | ||
(To record written of accounts receivables) | |||
2 | Accounts receivables Dr | $3,500 | |
To Allowance for doubtful accounts | $3,500 | ||
(To reinstate account previously written off) | |||
3 | Cash Dr | $3,500 | |
To Accounts receivables | $3,500 | ||
(To record collection of accounts previously written off) |
Solution 2: | |
Beginning balance of accounts receivable, net | 457000 |
Add: Beginning allowance account balance | 35000 |
Add: Credit Sales | 1775000 |
Less: Collection from customers | -1855000 |
Less: Accounts written off | -$40,000 |
Ending Balance of Accounts Receivable (Gross) | 372000 |
Beginning balance of allowance account | 35000 |
Less: Accounts written off | -$40,000 |
Add: Reinstatement of account | $3,500 |
Ending balance of allowance account | -1500 |
Journal Entry 2 - Raintree Cosmetic Company | |||
Event | Particulars | Debit | Credit |
a | Bad debts Expense Dr ($1,755,000*3%) | $53,250.00 | |
To Allowance for doubtful accounts | $53,250.00 | ||
(To record bad debts expense) | |||
b | Bad debts Expense Dr ($372,000*10% + $1500) | $38,700.00 | |
To Allowance for doubtful accounts | $38,700.00 | ||
(To record bad debts expense) | |||
c | Bad debts Expense Dr ($41292+ $1500) (Note 1) | $42,792.00 | |
To Allowance for doubtful accounts | $42,792.00 | ||
(To record bad debts expense) |
Journal Entry 2 - Raintree Cosmetic Company | |||
Event | Particulars | Debit | Credit |
a | Bad debts Expense Dr ($1,755,000*3%) | $53,250.00 | |
To Allowance for doubtful accounts | $53,250.00 | ||
(To record bad debts expense) | |||
b | Bad debts Expense Dr ($372,000*10% + $1500) | $38,700.00 | |
To Allowance for doubtful accounts | $38,700.00 | ||
(To record bad debts expense) | |||
c | Bad debts Expense Dr ($41292+ $1500) (Note 1) | $42,792.00 | |
To Allowance for doubtful accounts | $42,792.00 | ||
(To record bad debts expense) |
SOLUTION 3: | |||
Accounts recivable | Ending Allowance Accounts Balance | Net realizable value | |
a. ($53250 - 1500) | $3,72,000 | $51,750 | $3,20,250 |
b. ($372000*10%) | $3,72,000 | $37,200 | $3,34,800 |
c. | $3,72,000 | $41,292 | $3,30,708 |