Question

Problem 7-1 (Algo) Uncollectible accounts; allowance method; income statement and balance sheet approach [LO7-5, 7-6] 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 $588,000 and the allowance account had a credit balance of $52,000. Accounts receivable activity for 2021 was as follows: Beginning balance Credit sales Collections Write-offs Ending balance $ 588,000 2,690,000 (2,553,000) (46,000) $ 679,000 The company's controller prepared the following aging summary of year-end accounts receivable: Summary Percent Uncollectible 3% Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Amount $405,000 96,000 56,000 122,000 $ 679,000 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 2021? 3-b. How would accounts receivable appear in the 2021 balance sheet?

Answer 1

solution- 1. Journal Entry
S.No.	Accounts titles and Explanation	Debit	Credit
1	Bad debt expense ($2,690,000*2%)	$53,800.00
	Allowance for uncollectible accounts		$53,800.00
	To record bad debt expense
2	Allowance for uncollectible accounts	$46,000.00
	Accounts receivable		$46,000.00
	To record the write off

Working Note -1 Statement showing Estimated uncollected accounts
Details	Total Amount (A)	Percentage uncollectible (%) (B)	Allowance for doubtful accounts (AXC)
0–60 days	$405,000.00	3%	$12,150.00
61–90 days	$96,000.00	10%	$9,600.00
91–120 days	$56,000.00	26%	$14,560.00
Over 120 days	$122,000.00	37%	$45,140.00
	$679,000.00		$81,450.00

Working Note-2 Computation of estimated bad debt expense-
Detail	Amount
Beg Bal	$52,000.00
Add:Bad Debt for month (2690000*2%)	$53,800.00
Less: Write offs made	-$46,000.00
Balance	$59,800.00
Less: Estimated allowance	-$81,450.00
increase in allownace by	$21,650.00

solution- 2. Journal Entry
Accounts titles and Explanation	Debit	Credit
Bad debt expense	$21,650.00
Allowance for uncollectible accounts		$21,650.00
To record bad debt expense

3. a Computation of Total Bad Debt Expense
Monthly Bad Debt Expense	$53,800.00
Increase in Allowance	$21,650.00
Total Bad Debt Expense	$75,450.00

3b. Balance Sheet ( Partial)
	Amount	Amount
Assets:
Current assets:
Accounts receivable	$679,000.00
Less: Allowance for bad debts	-$81,450.00	$597,550.00