Question

390 SECTION 2 Assets Problems connect P 7-1 Uncollectible accounts: allowance method, income statement and balance sheet approach • LO7-5, LO7-6 Swathmore Clothing Corporation grants its customers 30 days credit. The company uses the allowance method Tor its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% 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 $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2021 was as follows: Beginning balance Credit sales Collections Write-offs Ending balance $ 574,000 2,620,000 (2,483,000) (68,000) $ 643,000 The company's controller prepared the following aging summary of year-end accounts receivable: Summary Percent Uncollectible Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Amount $430,000 98,000 60,000 55.000 $643,000 15 40 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. What is total bad debt expense for 2021? How would accounts receivable appear in the 2021 balance sheet2

Answer 1

1.

Sl.No	Account Title and Explanation	Debit	Credit
1	Bad Debt Expense	$78,600
	Allowance for uncollectable		$ 78,600
2	Allowance for uncollectable	$ 68,000
	Accounts Receivable		$68,000

Explanation ;

Bad Debt Expense ( 3 % * $ 2,620,000) = $ 78,600

2.

Sl.No	Account Title and Explanation	Debit	Credit
1	Bad Debt Expense	$ 4,300
	Allowance for uncollectable		$ 4,300

Explanation ;-

Year and required allowance for uncollectible accounts summary.

Age Group	Amount	Percentage Uncollectible	Estimated Allowance
0-60Days	$430,000	4 %	$17,200
61-90Days	$98,000	15 %	$14,700
91-120Days	$ 60,000	25 %	$15,000
Over 120 Days	$55,000	40%	$22,000
Total	$643,000		$68,900

Allowance for Uncollectible Accounts.

Beginning Balance	$54,000
add: Monthly baddebt accruals	$78,600
Deduct: Write - Offs	($68,000)
Balance before year end adjustments	$64,600
Required Allowance ( Determined above)	$68,900
Required Year end increase in Allowance	$ 4,300

3.a) Total Bad Debt Expense for 2021

Bad Debt Expense = $ 82,900

Explanation;  

Bad Debt Expense for 2021

Monthly Accruals =  $ 78,600

Year end adjustment = $ 4300

Total = $ 82,900

b )Accounts Receivable, Net off $ 68,900 allowance for uncollectible accounts = $ 574,100 ($ 643,000 - $ 68,900)