Question

Sensational Aqua Sports Corp. (SAS) is a publicly reportable enterprise with a December 31 year end. Select details regarding SAS’s accounts receivables (ARs) and allowance for doubtful accounts (AFDA) follow:

Closing balance AFDA 12/31/20X3	$46,750
Net sales 20X4	$12,235,000
Percentage of net sales made on credit terms	90%
Net credit sales in December 20X4	$1,310,000
Monthly estimate of bad debt expense	1% of net credit sales
Bad debts written off in 20X4 during the year	$112,000
20X4 collection of ARs written off in 20X3	$1,895

Summary aged ARs at 12/31/20X4	Specifically identified as being uncollectable	% allowance required
1-30 days $985,900	$ 0	1%
31-60 days 325,500	0	5%
61-90 days 42,400	16,700	10%
>90 days 12,980	7,980	25%
total= $1,393,780

SAS processes a journal entry each month end (including December) to provide for its estimated bad debt expense for the month based on credit sales. At year end, as part of its adjusting entry process, it then uses the aging method to determine the required balance for the AFDA account.

Required:
Prepare journal entries to record the following:
a) Recovery of the AR written off in 20X3. (Prepare two journal entries.)
b) Provision for the estimated bad debt expense in December 20X4 based on credit sales.
c) Year-end adjusting entries to provide for the writeoff of specifically identified accounts and to bring the balance of the AFDA account to the required balance as at December 31, 20X4.

Answer 1

a)

Date	General Journal	Debit	Credit
20X3	Accounts receivable	1895
	Allowance for doubtful accounts		1895
	(To re-instate accounts receivable written off)
	Cash	1895
	Accounts receivable		1895
	(To record collection of accounts receivable)

b)

Date	General Journal	Debit	Credit
Dec. 31, 20X4	Bad debt expense (1% x $1310000)	13100
	Allowance for doubtful accounts		13100
	(To record the bad debt expense)

c)

Date	General Journal	Debit	Credit
Dec. 31, 20X4	Allowance for doubtful accounts ($16700 + $7980)	24680
	Accounts receivable		24680
	(To record write-off of specifically identified accounts)

There is an error in the Summary aged ARs at 12/31/20X4 as the amounts given do not total up to $1,393,780 as shown due to which the final entry cannot be recorded. Kindly check.