Question

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $690,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $45,000 at the beginning of 2021 and $27,500 in receivables were written off during the year as uncollectible. Also, $2,500 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. Required: 1. Prepare journal entries to record the write-off of receivables, the collection of $2,500 for previously written off receivables, and the year-end adjusting entry for bad debt expense. 2. How would accounts receivable be shown in the 2021 year-end balance sheet?

Answer 1

Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Allowance for uncollectible accounts	27,500
	Accounts receivable			27,500
	(for amount written off)
b.	Accounts recievable			2500
	Allowance for uncollectible accounts		2500
	(for amount reinstated)
c.	Bad debts expense	(690000*10% - 20,000)	49,000
	Allowance for uncollectible accounts		49,000
	(for bad debts expense recognized)
Balance Sheet (Extract)
Accounts receivable			6,90,000
Less: Allowance for uncolectible accounts	69,000
Net realizable value of Accounts receivable	6,21,000