Question

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 $602,000 and the allowance account had a credit balance of $66,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	602,000
Credit sales		2,760,000
Collections		(2,623,000	)
Write-offs		(53,000	)
Ending balance	$	686,000

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

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	440,000	5	%
61–90 days		70,000	11
91–120 days		63,000	22
Over 120 days		113,000	37
Total	$	686,000

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

Answer 1

Journal entries:
S.no.	Accounts title and explanations				Debit $	Credit $
1	Bad debts accrual account				55200
	Allowance for uncollectible account					55200
	(2760000*2%)
	Allowance for Uncollectible account				53000
	Accounts receivable					53000
2	Bad debts expense				72370
	Bad debts accrual					55200
	Allowance for uncollectible account					17170
Note:
Actual bad debts expenses
Age	AR	% uncollectible		Estimated allowance
0-60	440000	5%		22000
61-90	70000	11%		7700
91-120	63000	22%		13860
Over120	113000	37%		41810
	686000			85370
Required balance of allowance			85370
Actual balance:
Beginning		66000
Less: write off		53000	13000
bad debts expense			72370
Less: Bad debts accruals to be adjusted			55200
Remaining amount to be transferred			17170
Req 3-a:
Total bad debts expenses = 72370
Req 3-b:
Accounts recievable-Gross				686000
Less: Allowance for uncollectible account				85370
Net Accounts receivable				600630