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 $46,000	$	512,000

During 2018, credit sales were $1,830,000, cash collections from customers $1,910,000, and $55,000 in accounts receivable were written off. In addition, $4,600 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	60	%	3	%
61–90 days	10		5
91–120 days	20		25
Over 120 days	10		45

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 2% 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?

Journal Entry Worksheet

Requirement 1.

1.Record accounts receivable written off during the year 2018.

2.Record entry to reinstate an account receivable previously written off.

3.Record collection of an account receivable previously written off.

Requirement 2

1.Bad debt expense is estimated to be 2% 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.

Requirement 3

1.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

1.Record accounts receivable written off during the year 2018.
	Debit	Credit
Allowance for uncollectible accounts	55000
Accounts receivable		55000
2.Record entry to reinstate an account receivable previously written off.
	Debit	Credit
Accounts receivable	4600
Allowance for uncollectible accounts		4600
3.Record entry to reinstate an account receivable previously written off.
	Debit	Credit
Cash	4600
Accounts receivable		4600

Requirement-2
1. Bad Debt expense 2% of credit sale
Bad Debt Expense	36600
Allowance for uncollectible accounts		36600
(2% of 1830000)
2. 10% of year end balance
Bad Debt Expense	46700
Allowance for uncollectible accounts		46700
(10% of 423000+4400
Working:	Accounts Receivable
	Beginning	558000	Write off	55000
	Credit Sale	1830000	Cash Sale	1910000
			Closing Balance	423000
	Allowance for uncollictibel accounts
	Write off	55000	Beginning	46000
			Collection of previousl w/off	4600
	Closing Balance	4400
3. 10% of year end balance-aeging
Bad Debt Expense	54314
Allowance for uncollectible accounts		54314
(49914+4400)
Age Group	Amount % of 423000	% Uncollectible	Estimated Allowance
0-60	253800	3	7614
61-90	42300	5	2115
91-120	84600	25	21150
over 120	42300	45	19035
	423000		49914
Requirment-3
	Accounts Receivable	Less year end allowance
a	423000	36600-4400=32200	390800
b	423000	42300	380700
c	423000	49914	373086