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 3% 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 $580,000 and the allowance account had a credit balance of $44,000. Accounts receivable activity for 2021 was as follows: Beginning balance $ 580,000 Credit sales 2,650,000 Collections (2,513, 000) Write-offs (42,000) Ending balance $ 675,000 The company's controller prepared the following aging summary of year-end accounts receivable: 4% Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Summary Amount Percent Uncollectible $385,000 92,000 52,000 146,000 $675,000 WN 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

1
	Debit	Credit
Bad debt expense	79500		=2650000*3%
Allowance for uncollectible accounts		79500
Allowance for uncollectible accounts	42000
Accounts receivable		42000
2
	Debit	Credit
Bad debt expense	4560
Allowance for uncollectible accounts		4560
3a
Bad debt expense	84060		=79500+4560
3b
Balance sheet
Current assets:
Accounts receivable (net)	588940		=675000-86060
Workings:
	Amount	% uncollectible	Amount uncollectible
0—60 days	385000	4%	15400
61—90 days	92000	12%	11040
91—120 days	52000	22%	11440
Over 120 days	146000	33%	48180
Total	675000		86060
Beginning balance, Allowance	44000
Add: Monthly bad debt accruals	79500
Deduct: Write-offs	-42000
Unadjusted balance	81500
Required allowance	86060
Required year-end increase in allowance	4560