In: Accounting
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 2017, accounts receivable were $608,000 and the allowance account had a credit balance of $72,000. Accounts receivable activity for 2018 was as follows:
Beginning balance | $608,000 |
---|---|
Credit sales | 2,790,000 |
Collections | (2,653,000) |
Write-offs | (56,000) |
Ending balance | $689,000 |
The company's controller prepared the following aging summary of year-end accounts receivable:
Summary | ||
---|---|---|
Age Group | Amount | Percent Uncollectible |
0-60 days | $455,000 | 5% |
61-90 days | 76,000 | 14 |
91-120 days | 66,000 | 25 |
Over 120 days | 92,000 | 40 |
Total | $689,000 |
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 2018?
3-b. How would accounts receivable appear in the 2018 balance sheet?