Raintree Cosmetic Company sells its products to customers on a credit basis. An
ID: 2518507 • Letter: R
Question
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 $33,000 $ 447,000
During 2018, credit sales were $1,765,000, cash collections from customers $1,845,000, and $38,000 in accounts receivable were written off. In addition, $3,300 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 Percent Age Group Receivables in Group Uncollectible 0–60 days 70 % 5 % 61–90 days 20 15 91–120 days 5 20 Over 120 days 5 40
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: Bad debt expense is estimated to be 4% of credit sales for the year. 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. 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
Ans 1 Tran General journal Dr Cr 1 Allowance for Uncollectible accounts $38,000 Accounts Receivable $38,000 (account receivable written off) 2 Accounts Receivable $3,300 Allowance for Uncollectible accounts $3,300 (record collection of receivable previously written off) Cash $3,300 Accounts Receivable $3,300 ans 2 2a Bad debt expenses 70600 dec 31 2017 Allowance for Uncollectible accounts 70600 (1765000*4%) 2b dec 31 2017 Bad debt expenses 37900 Allowance for Uncollectible accounts 37900 Gross Opening accounts receivable 480000 Add: credit sales 1765000 Less: collection -1845000 Less: written off -38000 Balance 362000 10% of it 36200 Add: Dr balance of allowance account 1700 (33000-38000+3300) Bad debt expenses 37900 Age group % of year e nd balances Amt of accounts rec % of uncollectible Estimated amt 0-60 days 70% 362000 253400 5% 12670 61-90 days 20% 362000 72400 15% 10860 91-120 days 5% 362000 18100 20% 3620 over 120 days 5% 362000 18100 40% 7240 Total 34390 Add: Dr balance of allowance account 1700 Bad debt exp 36090 2c Bad debt expenses 36090 Allowance for Uncollectible accounts 36090 ans 3 Net account receivable a 327500 362000-36200+1700 b 327500 362000-36200+1700 c 329310 362000-34390+1700
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