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 recelvable were $608,000 and the allowance account had a credit balance of $72,000. Accounts receivable activity for 2021 was as follows: 704 Beginning balance Credit sales Collections Write-ofts Ending balance $ 608,000 2,790,000 (2,653,000) (56,000) $ 689,000 The company's controller prepared the following aging summary of year-end accounts receivable: Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Summary Amount Percent Uncollectible $455,000 55 76,000 14 66,000 25 92,000 40 $689,000 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

	Accounts Title and Explanation	Debit	Credit
1)	Allowance For uncollectible accounts	56,000
	Accounts Receivable		56,000
	(To record write off of accounts)
	Bad debt expense	55,800
	Allowance for uncollectible accounts		55,800
	(To record monthly bad debt accrual expense)
2)	Bad debt expense	14,890
	Allowance for uncollectible accounts		14,890
	(To pass adjustment entry for bad debt expense)
	Note 1:
	Age Group	Amount	% uncollectible	Allowances for uncollectible accounts
	0-60 days	455000	5%	22750
	61-90 days	76000	14%	10640
	91-120 days	66000	25%	16500
	Over 120 days	92000	40%	36800
	Total	689000		86690
	Allowance Required	86,690
	Less: Already have balance	71,800	(72000-56000+55800)
	More to be debit to expense	14,890
3-a)	Bad debt expense for 2018	70,690	(55800+14890)
3-b	Balance Sheet (Partial)
	Current Assets:
	Accounts receivable, Gross	689,000
	Less: Allowance for uncollectible account	86,690
	Accounts receivable, Net	602,310