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 2017, accounts receivable were $594,000 and the allowance account had a credit balance of $58,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	594,000
Credit sales		2,720,000
Collections		(2,583,000	)
Write-offs		(49,000	)
Ending balance	$	682,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	420,000	3	%
61–90 days		90,000	13
91–120 days		59,000	29
Over 120 days		113,000	40
Total	$	682,000

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 2018?
3-b. How would accounts receivable appear in the 2018 balance sheet?

I've done 1 and 3B correctly. For some reason my math isn't adding up for 2 and 3a. I got $24,010 for 2 and $78,410 for 3a but they are both coming up incorrect.
  

Answer 1

SOLUTION 1
Swathmore Clothing Corporation
Journal Entries
Event	Particulars	Debit	Credit
1	Bad debts expense Dr ($2,720,000*2%)	$54,400
	To Allowance for doubtful accounts		$54,400
	(To record monthly bad debts accrual)
2	Allowance for doubtful accounts Dr	$49,000
	To Accounts Receivable		$49,000
	(To record write off during the year)
SOLUTION 2
Year end Adjusting Journal Entries
Event	Particulars	Debit	Credit
1	Bad debts expense Dr ($86610-$54400-$58000+$49000)	$23,210
	To Allowance for doubtful accounts		$23,210
	(To record year end adjusting entry for bad debts expense)
	Computation of Year end estimated uncollectibles
	Age	Balance	% Uncollectibles	Estimated Uncollectibles
	0-60 days	$4,20,000	3%	$12,600
	61-90 days	$90,000	13%	$11,700
	91-120 days	$59,000	29%	$17,110
	Over 120 days	$1,13,000	40%	$45,200
	Total			$86,610
SOLUTION 3A	Total bad debt expense for 2021 = 54400+23210 = $77,610
SOLUTION 3B
	Swathmore Clothing Corporation
	Balance Sheet (Partial)
	Current assets:
	Accounts receivables (Net) [$682000-$86610]	$5,95,390