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 2020 balance sheet disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $38,000	$	472,000

During 2021, credit sales were $1,790,000, cash collections from customers $1,870,000, and $43,000 in accounts receivable were written off. In addition, $3,800 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:

1. Bad debt expense is estimated to be 3% of credit sales for the year.
2. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. 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 adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. 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 2021 balance sheet?

Answer 1

1)	Journal entries
	Accouting titles & Explanations				Debit	Credit
	Allowance for uncollectible accounts				43,000
	Account receivable					43,000
	Account receivbale				3,800
	allowance for uncollectible accouts					3,800
	Cash				3,800
	Account receivable					3,800
2)	Journal entries
	Accouting titles & Explanations				Debit	Credit
a)	Bad debts expense				53700
	Allowance for uncollectible accounts					53,700
	(1,790,000*3%)
b)	Bad debts expense				39,900
	Allowance for uncollectible accounts					37,500
	(387000*10%+1200)
	T-account
	Account receivable					Allowance for uncollectible
	openint	510000	Cash	1,870,000		written off	43,000	opening	38,000
	Sales	1,790,000	writtehn off	43,000				reinstated	3,800
	restated	3,800	collected	3,800
						bal	1,200
	End bal	387,000
c)	Bad debts expense				44,157
	Allowance for uncollectible accounts					44,157
	(42,957+1200)
	Age grouo			%
	0--60		251550	4%	10062
	61--90		58050	10%	5805
	91----120		58050	30%	17415
	over 120		19350	50%	9675
					42957
3)			net account
			receivable reported
	a		334,500
	b		348,300
	c		344,043