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 $594,000 and the allowance account had a credit balance of $58,000. Accounts receivable activity for 2021 was as follows: Beginning bal ance Credit sales 594,000 2,720,000 (2,583,000) (49,000) Collections Write-offs 682,000 Ending balance The company's controller prepared the following aging summary of year-end accounts receivable: Summary Age Group 0-60 days 61-90 days 91-120 days Over 120 days Amount Percent Uncollectible $420,000 90,000 59,000 3 13 29 113,000 40 $682,000 Total Required: 1. Prepare a summary journal entry to record the monthly bad de bt 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

1
	Debit	Credit
Bad debt expense	54400		=2720000*2%
Allowance for uncollectible accounts		54400
Allowance for uncollectible accounts	49000
Accounts receivable		49000
2
	Debit	Credit
Bad debt expense	23210
Allowance for uncollectible accounts		23210
3a
Bad debt expense	77610		=54400+23210
3b
Balance sheet
Current assets:
Accounts receivable (net)	595390		=682000-86610
Workings:
	Amount	% uncollectible	Amount uncollectible
0—60 days	420000	3%	12600
61—90 days	90000	13%	11700
91—120 days	59000	29%	17110
Over 120 days	113000	40%	45200
Total	682000		86610
Beginning balance, Allowance	58000
Add: Monthly bad debt accruals	54400
Deduct: Write-offs	-49000
Unadjusted balance	63400
Required allowance	86610
Required year-end increase in allowance	23210