Question

Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following. 1. Sales revenue for 2020, $720,000, of which one-sixth was on account. 2. Allowance for doubtful accounts, balance December 31, 2019, $3,600 credit. 3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $72,200. 4. Uncollectible accounts to be written off, December 31, 2020, $4,200. 5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off. Status Amount Not past due Remainder Past due 1-60 days $16,000 Past due over 60 days 12,000 Required a. Prepare the 2020 entry to write off the uncollectible accounts. b. Prepare the 2020 adjusting entry to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. 1. Based on credit sales, 1.5%. 2. Based on total receivables at year-end, 2.5%. 3. Based on aging schedule: not past due, 0.5%; past due 1-60 days, 1%; and past due over 60 days, 8%. 4. Based on direct write-off method (assume entry in part a has not been recorded). C. Prepare the 2020 balance sheet disclosure relating to accounts receivable for each assumption 1 through 4 of part b. Date Account Name Dr. Cr. Dec 31, 2020

Answer 1

a.

Date	Account Titles	Debit	Credit
Dec-31	Allowance for Doubtful Debts	$             4,200
	Accounts Receivable		$                4,200

b.
1.

Date	Account Titles	Debit	Credit
Dec-31	Bad Debt Expense	$             1,800		=720000*1/6*1.5%
	Allowance for Doubtful Debts		$                1,800

2.

Date	Account Titles	Debit	Credit
Dec-31	Allowance for Doubtful Debts	$                400		=2100-(72200-4200)*2.5%
	Bad Debt Expense		$                   400

Allowance for Doubtful debts unadjusted balance = $6300-4200 = $2100

3.

Not past due	$             40,000	0.50%	$       200
1-60 days	$             16,000	1%	$       160
Over 60 days	$             12,000	8%	$       960
			$    1,320

Date	Account Titles	Debit	Credit
Dec-31	Allowance for Doubtful Debts	$                780		=6300-1320
	Bad Debt Expense		$                   780

4.

Date	Account Titles	Debit	Credit
Dec-31	Bad Debt Expense	$             4,200
	Accounts Receivable		$                4,200

c.

	1	2	3	4
Accounts Receivable	$           68,000	$             68,000	$        68,000	$        68,000
Less :Allowance for Doubtful Debts	$             3,900	$                1,700	$          1,320	$                 -
Accounts Receivable, net	$           64,100	$             66,300	$        66,680	$        68,000