Question

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 Group 0-60 days 61-90 days 91 - 120 days Over 120 days Percentage of Year-end Receivables in Group 65% 20% 10% Percent Uncollectible 4% 15% 25% 40% 5% 1. What is the balance in the Accounts Receivable account at 12/31/2019? (Hint: use a T-account to post all the information provided above that impacts the Accounts Receivable account in 2019) 2. Calculate the amount of bad debt expense to be recorded at 12/31/2019, assuming each of the following independent situations: a. Bad debt expense is estimated to be 3% of credit sales for the year. b. Bad debt expense is calculated using the results of the aging analysis performed at year-end. NOTE: Using an aging of accounts receivable is one approach for using the gross receivables method. Using an aging approach applies a different percentage to each aging category in determining the desired ending balance in the allowance account rather than using a single percentage. An aging approach is more precise because you are adjusting the percentage based on the age of the accounts, the older the account the more likely it is to become uncollectible.

Answer 1

1.

Accounts Receivable
Beginning Balance	$         4,62,000
Sales	$       17,50,000	$        18,30,000	Cash
		$              35,000	Allowance for Doubtful Debts
Ending Balance	$         3,47,000

Accounts Receivable balance = $347000

2.
a. Bad Debt Expense = $1750000 x 3% = $52500

b. Bad Debt Expense = $35047+5000 = $40047

Age Group	Accounts Receivable	Percent Uncollectible	Allowance for Doubtful Debts
0-60 days	$         2,25,550	4%	$                9,022
61-90 days	$            69,400	15%	$              10,410
91-120 days	$            34,700	25%	$                8,675
Over 120 days	$            17,350	40%	$                6,940
Total	$        3,47,000		$              35,047

Allowance for Doubtful Debts unadjusted balance = $30000 - 35000 = ($5000)