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 $30,000 $432,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Receivables in Group Percent Uncollectible Age Group 0-60 days 65% 4% 61-90 days 20 15 91-120 days 10 25 Over 120 days 5 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 3% 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?

I just need help with requirement three!

Answer 1

Solution 3:

Ending balance in accounts receivables = Beginning receivables + Credit sales - Collection - Write off

= ($432,000 + $30,000) + $1,750,000 - $1,830,000 - $35,000

= $347,000

Ending balance in allowance for doubtful accounts before adjusting entry = Beginning balance - Write off + Bad debts recovered previously written off

= $30,000 -  $35,000 + $3,000 = $2,000 debit

Computation of Allowance for Uncollectible Accounts
Ageing	% of year end receivables in Group	Accounts Receivables	% Uncollectible	Required Allowance
0-60 days	65%	$225,550	4%	$9,022
61-90 days	20%	$69,400	15%	$10,410
91-120 days	10%	$34,700	25%	$8,675
Over 120 days	5%	$17,350	40%	$6,940
Total		$347,000		$35,047

a. Net accounts receivables = $347,000 - ($52,500 - $2,000) = $296,500

b. Net accounts receivables = $347,000 - $34,700 = $312,300

c. Net accounts receivables = $347,000 - $35,047 = $311,953