Problem 7-4 Uncollectible accounts [LO7-5, 7-6]
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 $30,000 $432,000 During 2018, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off in 2017.
An aging of accounts receivable at December 31, 2018, reveals the following:
Age Group. | Percentage of Year-End Percent Age Group | Receivables in Group Uncollectible |
0–60 days | 65% | 4% |
61–90 days | 20% | 15% |
91–120 days | 10% | 25% |
Over 120 days | 5% | 40% |
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 3% 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) to (c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet for each situation.
Ques 1 | ||
Write Offs | ||
General Journal | Debit | Credit |
Allowance for uncollectible accounts | 35000 | |
Accounts receivable | 35000 | |
Collection: | ||
Accounts receivable | 3000 | |
Allowance for uncollectible accounts | 3000 | |
Cash | 3000 | |
Accounts receivable | 3000 | |
Ques 2 | ||
a. | ||
Bad debt expense | 52500 | |
Allowance for uncollectible accounts | 52500 | |
(1750000*3%) | ||
b. | ||
First we need balance to accounts receivable | ||
Opening Balance | $ 432,000 | |
Add:credit sales | $ 1,750,000 | |
Less:cash collections | $ (1,830,000) | |
Less:write offs | $ (35,000) | |
Closing Balance | $ 317,000 | |
Now we record the entry | ||
Bad debt expense | 36700 | |
Allowance for uncollectible accounts | 36700 | |
(31700+35000-30000) | ||
c. | ||
0-60 days | 317000*65%*4% | 8242 |
61-90 days | 317000*20%*15% | 9510 |
91-120 days | 317000*10%*25% | 7925 |
over 120 days | 317000*5%*40% | 6340 |
total | 32017 | |
Now we record the entry | ||
Bad debt expense | 37017 | |
Allowance for uncollectible accounts | 37017 | |
Ques 3 | ||
a.317000-(52500-5000) | $ 269,500 | |
b.317000-31700 | $ 285,300 | |
c.317000-37017 | $ 284,983 |
Problem 7-4 Uncollectible accounts [LO7-5, 7-6] Raintree Cosmetic Company sells its products to c...
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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 $30,000 $432,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off...
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 $33,000 $ 447,000 During 2021, credit sales were $1,765,000, cash collections from customers $1,845,000, and $38,000 in accounts receivable were written off. In addition, $3,300 was collected from a customer whose account was written...
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 $36,000 $462,000 During 2021, credit sales were $1,780,000, cash collections from customers $1,860,000, and $41,000 in accounts receivable were written off. In addition, $3,600 was collected from a customer whose account was written off...
Raintree Cosmetic Company sells its product to customers on a credit basis. An adjusting entry for uncollectible accounts expense is recorded only at December 31, the company's fiscal year-end. The 2018 balance sheet disclosed the following: Current Assets: Accounts Receivable, net of allowance for uncollectible accounts of $30,000 $432,000 During 2018, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. An aging of receivable at December 31, 2018, reveals the following: Age...
Raintree Cosmetic Company sells its product to customers on a credit basis. An adjusting entry for uncollectible accounts expense is recorded only at December 31, the company's fiscal year-end. The 2018 balance sheet disclosed the following: Current Assets: Accounts Receivable, net of allowance for uncollectible accounts of $30,000 $432,000 During 2018, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. An aging of receivable at December 31, 2018, reveals the following: Percentage...
Raintree Cosmetic Company sells its product to customers on a credit basis. An adjusting entry for uncollectible accounts expense is recorded only at December 31, the company's fiscal year-end. The 2018 balance sheet disclosed the following: Current Assets: Accounts Receivable, net of allowance for uncollectible accounts of $30,000 $432,000 During 2019, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. An aging of receivable at December 31, 2019, reveals the following: Age...