Problem 7-1 (Algo) Uncollectible accounts; allowance method; income statement and balance sheet approach [LO7-5, 7-6] 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 2020, accounts receivable were $576,000 and the allowance account had a credit balance of $40,000. Accounts receivable activity for 2021 was as follows: Beginning balance Credit sales Collections Write-offs Ending balance $ 576,000 2,630,000 (2,493,000) (40,000) $ 673,000 The company's controller prepared the following aging summary of year-end accounts receivable: Summary Amount Percent Uncollectible Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total $435,000 98,000 50,000 90,000 $673,000 300 38 10 20 30 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 2021? 3-b. How would accounts receivable appear in the 2021 balance sheet?
Problem 7-1 (Algo) Uncollectible accounts; allowance method; income statement and balance sheet approach [LO7-5, 7-6] 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 2020, accounts receivable were $576,000 and the allowance account had a credit balance of $40,000. Accounts receivable activity for 2021 was as follows: Beginning balance Credit sales Collections Write-offs Ending balance $ 576,000 2,630,000 (2,493,000) (40,000) $ 673,000 The company's controller prepared the following aging summary of year-end accounts receivable: Summary Amount Percent Uncollectible Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total $435,000 98,000 50,000 90,000 $673,000 300 38 10 20 30 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 2021? 3-b. How would accounts receivable appear in the 2021 balance sheet?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter5: Sales And Receivables
Section: Chapter Questions
Problem 94.1C
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Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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![Problem 7-1 (Algo) Uncollectible accounts; allowance method; income statement and balance sheet
approach [LO7-5, 7-6]
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 2020, accounts receivable were $576,000 and the allowance account had a credit balance of $40,000. Accounts
receivable activity for 2021 was as follows:
Beginning balance
Credit sales
Collections
Write-offs
Ending balance
$ 576,000
2,630,000
(2,493,000)
(40,000)
$ 673,000
The company's controller prepared the following aging summary of year-end accounts receivable:
Age Group
0-60 days
61-90 days
91-120 days
Over 120 days
Total
Summary
Amount Percent Uncollectible
$435,000
98,000
50,000
90,000
$673,000
3 %
10
20
30
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 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96f1460f-c30c-40f6-b439-129c05adb630%2Fc61999b0-861b-4e0e-82bd-62058b3abc7c%2Fykzp999_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 7-1 (Algo) Uncollectible accounts; allowance method; income statement and balance sheet
approach [LO7-5, 7-6]
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 2020, accounts receivable were $576,000 and the allowance account had a credit balance of $40,000. Accounts
receivable activity for 2021 was as follows:
Beginning balance
Credit sales
Collections
Write-offs
Ending balance
$ 576,000
2,630,000
(2,493,000)
(40,000)
$ 673,000
The company's controller prepared the following aging summary of year-end accounts receivable:
Age Group
0-60 days
61-90 days
91-120 days
Over 120 days
Total
Summary
Amount Percent Uncollectible
$435,000
98,000
50,000
90,000
$673,000
3 %
10
20
30
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 2021?
3-b. How would accounts receivable appear in the 2021 balance sheet?
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