Concept explainers
Uncollectible accounts; allowance method; income statement and balance sheet approach
• LO7–5, LO7–6
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
At the end of 2017, accounts receivable were $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2018 was as follows:
Beginning balance | $ 574,000 |
Credit sales | 2,620,000 |
Collections | (2,483,000) |
Write-offs | (68,000) |
Ending balance | $ 643,000 |
The company’s controller prepared the following aging summary of year-end accounts receivable:
Summary | ||
Age Group | Amount | Percent Uncollectible |
0–60 days | $430,000 | 4% |
61–90 days | 98,000 | 15 |
91–120 days | 60,000 | 25 |
Over 120 days | 55,000 | 40 |
Total | $643,000 |
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. What is total bad debt expense for 2018? How would accounts receivable appear in the 2018 balance sheet?
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INTERMEDIATE ACCOUNTING(LL)
- McKinney Co. estimates its uncollectible accounts as a percentage of credit sales. McKinney made credit sales of 1,500,000 in 2019. McKinney estimates 2.5% of its sales will be uncollectible. Prepare the journal entry to record bad debt expense for McKinney at the end of 2019.arrow_forwardView Policies Current Attempt in Progress Vaughn Manufacturing has outstanding accounts receivable totaling $ 6.47 million as of December 31 and sales on credit during the year of $ 24.5 million. There is also a credit balance of $ 11500 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? O $388200. O $ 399700. O $ 376700. O $1470000. Save for Later Attempts: 0 of 1 used Submit Answerarrow_forwardP 7-4 Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following: Uncollectible accounts • LO7-5, LO7-6 Current assets: $432,000 Receivables, net of allowance for uncollectible accounts of $30,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was writ- ten off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Receivables in Group Percent Age Group Uncollectible 0-60 days 65% 4% 61-90 days 91-120 days Over 120 days 15 10 25 40 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previ- ously written off. 2. Prepare the year-end adjusting entry…arrow_forward
- es Exercise 7-12 (Algo) Uncollectible accounts; allowance method vs. direct write-off method [LO7-5, 7-6] Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $22,000 at the beginning of 2024. No previously written-off accounts receivable were reinstated during 2024. At 12/31/2024, gross accounts receivable totaled $366,700, and prior to recording the adjusting entry to recognize bad debts expense for 2024, the allowance for uncollectible accounts had a debit balance of 40,300. Required: 1. What was the balance in gross accounts receivable as of 12/31/2023? 2. What journal entry should Johnson record to recognize bad debt expense for 2024? 3. Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2024. Determine the amount of accounts receivable written off during 2024. 4. If Johnson instead used the direct…arrow_forwardQUESTION 5 Information about Calbee Company is provided below: Ending Accounts Receivable: $100,000 Total Credit Sales: $250,000 Beginning Allowance for Doubtful Accounts: $15,000 (Debit) Total Write-offs: $5.000 Calbee uses the percent of receivables method. It estimates that 3% of receivables will ultimately be uncollectible. What is the amount of Bad Debt Expense? I Iarrow_forwardQuestion 8 Al Bakara company report the following results for its calendar year December 31,2021. Cash sales 200,000 Credit sales 180,000 Account receivable 22,000 (debit) Account payable 46,000 (credit) Allowances for doubtful accounts 2,000 (debit) The company estimates bad debts to be 2% of annual total sale. Required: 1- Prepare the adjusting entry to record the estimated bad debt. Answer in the following format [Note: This is just an example and is not related to the question] Jan 1 Dr. Cash.......... ..120 Cr. Owner capital..............120 unts appear on Al Balarrow_forward
- Problem 4 MXC Company is a retailer. Its entered into a continuing agreement with SHN Financing Corporation to factor its accounts receivable to the latter. They agreed on the following: Credit terms is 5/10, n/30 5% commission to SHN based on the gross amount of the accounts receivable 20% of the gross uncollected accounts receivable will be withheld by SHN Returns by customers will be honored During April 2020, the following transactions took place relating to said agreement: April 14 MXC sold goods on account to NVG Company, P300,000 and accounts were immediately factored by SHN. April 16 MXC sold goods on account to MXG Company, P200,000 and accounts were immediately factored by SHN. April 18 NVG returned goods amounting to P20,000. April 20 NVG paid in full. April 25 MXC sold goods on account to AFN Company, P600,000 and accounts were immediately factored by SHN. April 26 AFN paid in full. Prepare the journal entries and compute the balance of the account Receivable from…arrow_forwardExercise 7-16 (Static) Uncollectible accounts; allowance method; balance sheet approach; financial statement effects [LO7-5, 7-6] Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2024, accounts receivable totaled $625,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $32,000 at the beginning of 2024 and $21,000 in receivables were written off during the year as uncollectible. Also, $1,200 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 $1,200 for previously written off receivables, and the year-end adjusting entry for bad debt expense. 2. How would accounts receivable be shown in the 2024 year-end balance sheet?…arrow_forwardProblem 3 On January 1,2020, Jamin Company had a credit balance of P260,000 in the allowance for uncollectible accounts. Based on past experience, 2% of credit sales would be uncollectible. During the year, the entity wrote off P325,000 of uncollectible accounts. Credit sales for the year were P9,000,000. On December 31,2020, what amount should be reported as allowance for uncollectible accounts?arrow_forward
- Question 8 Dreadful Behaviour Ltd has credit sales of $400,000 in 2022 and a debit balance of $1,900 in the Allowance for Doubtful Accounts at year end. As of December 31, 2022, $120,000 of accounts receivable remain uncollected. The credit manager of Dangle prepared an aging schedule of accounts abnor receivable and estimates that $4,800 will prove to be uncollectible. On March 3, 2023 the credit manager authorizes a write-off of the $1,000 balance owed by D. Taylor. On April 1, 2023 Mr. Taylor pays his account in full and also pays Dangle $75 interest on his account Required (a) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2022. (b) Show the statement of financial position presentation of accounts receivable on December 31, 2022. (c) On March 3, 2023 before the write-off, assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $3,000. Make the appropriate entry to record…arrow_forwardExercise 7-11 (Algo) Uncollectible accounts; allowance method vs. direct write-off method (L07-5, 7-6] Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $12.000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $200,100, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 22,000. Required: 1. What was the balance in gross accounts receivable as of 12/31/2020? 2. What journal entry should Johnson record to recognize bad debt expense for 2021? 3. Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2021. Determine the amount of accounts receivable written off during 2021. 4. If Johnson instead used the direct write-off…arrow_forwardExercise 7-13 (Algo) Uncollectible accounts; allowance method estimating bad debts as percentage of net sales vs. direct write-off method [LO7-5, 7-6] Ervin Company uses the allowance method to account for uncollectible accounts receivable. The allowance account is adjusted based on bad debt expense as a percentage of credit sales. For 2024, net credit sales totaled $5,600,000, and the estimated bad debt percentage is 1.70%. No previously written-off accounts receivable were reinstated during 2024. The allowance for uncollectible accounts had a credit balance of $53,000 at the beginning of 2024 and $45,500, after adjusting entries, at the end of 2024. Required: 1. What is bad debt expense for 2024 as a percent of net credit sales? 2. Assume Ervin makes no other adjustment of bad debt expense during 2024. Determine the amount of accounts receivable written off during 2024. 3. If the company uses the direct write-off method, what would bad debt expense be for 2024? 1. Bad debt expense as…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning