Swathmore Clothing Corporation grants its customers 30 days’ credit. The company
ID: 2415798 • Letter: S
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 3% 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 2015, accounts receivable were $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2016 was as follows: Beginning balance $ 574,000 Credit sales 2,620,000 Collections (2,483,000) Write-offs (68,000) Ending balance $ 643,000
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
Prepare the necessary year-end adjusting entry for bad debt expense
Explanation / Answer
Allowance for doubtful(uncollectible) receivables: (closing)
Amount uncollectible percentage Allowance
$430000 4% 17200
$98000 15% 14700
60000 25% 15000
55000 40% 22000
$68900
allowance of uncollectible receivable at beginning = $54,000
Add: Bad Debt(2620000 *3%) = $78600
less: bad debts written off = $68000
allowance of uncollectible receivable at closing =$64600
Additional bad debt needs to be recorded (Adjusted) = $68900 - $64600
= $4300
year-end adjusting entry for bad debt expense:
Bad debt Dr.$4300
To Allowance for uncollectible receivable $4300
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