Question

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 2020, accounts receivable were $588,000 and the allowance account had a credit balance of $52,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	588,000
Credit sales		2,690,000
Collections		(2,553,000	)
Write-offs		(46,000	)
Ending balance	$	679,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	405,000	3	%
61−90 days		96,000	10
91−120 days		56,000	26
Over 120 days		122,000	37
Total	$	679,000

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 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?

Answer 1

3(a)

Total bad debt expense for 2021 (53800+21650)= 75,450

3(b)

Accounts receivable(net) (679000-81450)= 597,550  

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