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 $614,000 and the allowance account had a credit balance of $78,000. Accounts receivable activity for 2021 was as follows:

Beginning balance	$	614,000
Credit sales		2,820,000
Collections		(2,683,000	)
Write-offs		(59,000	)
Ending balance	$	692,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0−60 days	$	470,000	5	%
61−90 days		82,000	11
91−120 days		69,000	28
Over 120 days		71,000	36
Total	$	692,000

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

ANSWER

1
Journal Entries:
Date	Accounts	Debit $	Credit $
2021	Allowance for Uncollectible Accounts	59000
	Accounts Receivable		59000
	(being accounts written off)
2021	Bad Debt Expense	56400			2820000*2%
	Allowance for Uncollectible Accounts		56400
	(being monthly bad debt accrual booked @ 2% of credit sales)
2
Dec 31 2021	Bad Debt Expense	2000
	Allowance for Uncollectible Accounts		2000
	[77400 - (78000-59000+56400)]
Age-wise doubtful accounts:
0-60	470000	5%	23500
61-90	82000	11%	9020
91-120	69000	28%	19320
over 120	71000	36%	25560
Total			77400
3a. Total bad debt expense for 2021 = 56400+2000 = 58400

3b. Accounts receivable appear in the 2021 Balance Sheet:
Assets:
Current Assets:
Accounts Receivable	692000
Less: Allowance for Uncollectible Accounts	-77400
Net Accounts Receivable	614600

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