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Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable At December 31, 2020,...

Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable

At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following.

1. Sales revenue for 2020, $180,000, of which one-sixth was on account.
2. Allowance for doubtful accounts, balance December 31, 2019, $900 credit.
3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $18,050.
4. Uncollectible accounts to be written off, December 31, 2020, $1,050.
5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off

Status Amount
Not past due Remainder
Past due 1–60 days $4,000
Past due over 60 days 3,000


Required

a. Prepare the 2020 entry to write off the uncollectible accounts.

b. Prepare the 2020 adjusting entry to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. Note: Treat each of the following scenarios separately, they are independent of one another.

1. Bad debt expense is based on credit sales, 1.5%. (Hint: See p. 8-19: Alternative to Estimating Net Realizable Value)

2. The Allowance for Doubtful accounts is based on total receivables at year-end, 2.5%.

3. The Allowance for Doubtful accounts is based on aging schedule: not past due, 0.5%; past due 1–60 days, 1%; and past due over 60 days, 8%.

a.

Date Account Name Dr. Cr.
Dec. 31, 2020 ? ? ?
? ? ?

b. Note: Treat each scenario separately, they are independent of one another.

1.

Date Account Name Dr. Cr.
Dec. 31, 2020 ? ? ?
? ? ?

2.

Date Account Name Dr. Cr.
Dec. 31, 2020 ? ? ?
? ? ?

3.

Date Account Name Dr. Cr.
Dec. 31, 2020 ? ? ?
? ? ?
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