Raintree Cosmetic Company sells its products to customers on a credit basis. An
ID: 2559390 • 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:
During 2018, credit sales were $1,820,000, cash collections from customers $1,900,000, and $53,000 in accounts receivable were written off. In addition, $4,400 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:
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 3% 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
1.Journal:
2. Percentage of credit sales:
Percentage of ending accounts receivable balance:
Workings:
Aging method:
Workings:
3. Percentage of sales method:
b. Percentage of accounts receivable method:
c. Aging method:
Reported amount= 367157
Account title Debit Credit Allowance for uncollectible account 53000 Accounts receivable 53000 [Entry for recording accounts written off during the year] Accounts receivable 4400 Allowance for uncollectible account 4400 [Restating written off account collected] Cash 4400 Accounts receivable 4400 [Entry for recording written off accounts collected during the year]Related Questions
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