I need help with questions 2 and 3. Raintree Cosmetic Company sells its products

Question

I need help with questions 2 and 3.

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 2017 balance sheet disclosed the following Current assets: Receivables, net of allowance for uncollectible accounts of $32,000 442,000 During 2018, credit sales were $1,760,000, cash collections from customers $1,840,000, and $37,000 in accounts receivable were written off. In addition, $3,200 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following Percentage of Year-End Receivables in Group 65% 10 20 Percent Uncollectible Age Group 0-60 days 4% 10 35 50 61-90 days 91-120 days Over 120 days Required 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations a. Bad debt expense is estimated to be 3% of credit sales for the year b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable 3. For situations (a)-(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?

Explanation / Answer

Solution 2a:

Solution 2b:

Accounts receivable balance at the end of 2018 (Gross) = opening receivables + Credit sales - Cash collection - Accounts written off

= ($442,000 + $32,000) + $1,760,000 - $1,840,000 - $37,000 = $357,000

Balance in allowance for uncollectible accounts before bad debts expense of current year = $32,000 - $37,000 + $3,200 = $1,800 Debit

Estimate balance for uncollectible accounts required at year end = $357,000 * 10% = $35,700

Bad debts expense to be recorded for 2018 = $35,700 + $1,800 = $37,500

Solution 2c:

Solution 3a:

Net amount of accounts receivables to be reported in 2018 balance sheet = $357,000 - ($52,800 - $1,800) = $306,000

Solution 3b:

Net amount of accounts receivables to be reported in 2018 balance sheet = $357,000 - $35,700 = $321,300

Solution 3c:

Net amount of accounts receivables to be reported in 2018 balance sheet = $357,000 - $46,767 = $310,233

Journal Entries No Transaction Particulars Debit Credit 2 a Bad debts expense Dr ($1,760,000*3%) $52,800.00         To Allowance for uncollectible accounts $52,800.00 (To record bad debts expense)

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