Question

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $33,000 $ 447,000 During 2021, credit sales were $1,765,000, cash collections from customers $1,845,000, and $38,000 in accounts receivable were written off. In addition, $3,300 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Age Group 0-60 days 61-90 days 91-120 days Over 120 days Percentage of Year-End Receivables in Group 70% 20 Onun Percent Uncollectible 5% 15 20 40 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: a. Bad debt expense is estimated to be 4% of credit sales for the year. b. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. c. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable. 3. For situations (a)-(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?

Answer 1

Estimated of Allowance balance as per Aging:
Age group		AR	% Uncoll.	Required Allowance
0-60 days		253400	5%	12670
61-90 days	72400	15%	10860
91-120 days	18100	20%	3620
Over 120 days	18100	40%	7240
Total		362000		34390
Balance of Accounts recievable-Gross:
Beginning balance of Accounts receivable	480000
Add: Credit sales			1765000
Less: Collections			-18,45,000
Less: Amount written off		-38000
Ending balance of AR-Gross		3,62,000
Balance of Allowance:
Beginning balance f Allowance		33000
Less: Amount written off		-38,000
Add: Amount reinstated		3300
Ending balance of Allowance		1,700	debit
Req 2.
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Bad debts expenses (1765000*4%)	70600
	Allowance for uncollectible accounts		70600
	(for bad debts expense recognized)
b.	Bad debts expenses (362000*10%+1700)	37900
	Allowance for uncollectible accounts		37900
	(for bad debts expense recognized)
c.	Bad debts expenses (34390+1700)	36090
	Allowance for uncollectible accounts		36090
	(for bad debts expense recognized)
Req 3.
Net realisable value:
case-a
Accounts recievable-Gross		362000
Less: Allowance for uncoll. Accounts	68900
	(70600-1700)
Net Accounts receivable		293100
Case-b
Accounts recievable-Gross		362000
Less: Allowance for uncoll. Accounts	36200
	(37900-1700)
Net Accounts receivable		325800
Case-c
Accounts recievable-Gross		362000
Less: Allowance for uncoll. Accounts	34390
	(36090-1700)
Net Accounts receivable		327610