Question

Slide 16 – problem 11

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 2017, accounts receivable were $612,000 and the allowance account had a credit balance of $76,000. Accounts receivable activity for 2018 was as follows:

Beginning balance                  $     612,000

     Credit sales                             2,810,000

     Collections                            (2,673,000)

      Write-offs                                  (58,000)

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

                                                                            Summary___________________

Age Group                                     Amount                    Percent Uncollectible

0-60 days                                   $465,000                                      5 %

61-90 days                                     80,000                                    10%

91-120 days                                   68,000                                   27%

Over 120 days                               78,000                                     35%

   Total                                        $691,000

                                                 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 2018? b.   How would accounts receivable appear in the 2018 balance sheet

Complete this question by entering your answers in the spaces below.

11. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field

Journal entry worksheet

               Record a summary entry to record the monthly bad debt accrual.

               Record a summary entry to record the 2018 write offs.

                Record the year-end adjusting entry for bad debt expense.

                        Note: enter debits before credits

Event	General Journal	Debit	Credit
1

                                                                                                Summary                                                  

Age Group                                                    Amount                                Percent Uncollectible   

0-60 days                                                  $465,000                                                5 %

61-90 days                                                    80,000                                               10  

91-120 days                                                  68,000                                              27

Over 120 days                                              78,000                                               35

        Total                                                    $691,000

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 2018?   b. How would accounts receivable appear in the 2018 balance sheet?

Complete this question by entering your answers in the spaces below.

What is total bad debt expense for 2018?

Bad debt expense____________________

                                                                                    

Complete this question by entering your answers in the spaces below.

How would accounts receivable appear in the 2018 balance sheet?

Balance Sheet (partial)
Current assets
Accounts receivable (net)

Answer 1

Journal entry for monthly accruals and write off:

Journal Entry to record monthly bad debt accrual and write-offs during the year: General Journal Bad Debt expense Allowance for uncollectible accounts Event Debit Credit $ 56,200 $ 56,200 To record bad debt expense accruals) 000*2%-$ 56,200 Allowance for uncollectible accounts 58,000 Accounts Receivable $58,000 (To record write off for the year)

Journal entry for year end adjustment:

Journal Entry for year end adjusting entry for Bad debts expense: General ournal Debit 1 Bad debt expense $2,710 Allowance for uncollectible accounts $ 2,710 (To record year end adjustment of allowance for uncollectible accounts)

Workings for above entry amount:

Calculation: Percent Estimated ge Group Amount 0-60 days 61-90 days$ 91-120 days $ Over 120 days $ 4,65,000 80,000 68,000 78,000 6,91,000 Uncollectible Allowance Calculation 5|$ 23,250 465000*5% 10$ 8,000 180000" 10% 27$ 18,360 |68000*27% 35$ 27,300|78000*35% Total $ 76,910 Allowance for uncollectible accounts: Beginning Balance Add: Monthly Bad debt accruals Deduct: Write-offs Balance before year end adjustment Required allowance (Determined above) Required year end increase in allowance $ 76,000 $ 56,200 $ (58,000) 74,200 (76,000 $ 76,910 56,200 58,000) $ 2,710 (76,910 74,200)

Question a:

Question a: Total bad debt expense 58,910 Bad debt expense for 2018: Monthly accruals 56,200 Year-end adjustment $ 2,710 58,910 (56200 2710) Total

Question b:

Question b: Balance sheet (Partial) Current Assets: Accounts Receivable (net) (691,000- 76,910) (We have to deducted the closing balance of allowance for uncollectible accounts) Determination of closing balance of accounts receivable: Beginning balance 612,000 Add:Credit sales 28,10,000 Deduct: Collections 26,73,000 Deduct: Write offs 58,000 Closing Balance 612,000 28,10,000 26,73,000 58,000 Closing Balance$ 691,000 6,14,090