Raintree Cosmetic Company sells its products to customers on a credit basis. An

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 $1,830,000, cash collections from customers $1,910,000, and $55,000 in accounts receivable were written off. In addition, $4,600 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 2% 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

Explanation / Answer

Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. a. Allowance for Uncollectible Account    55,000.00    Accounts Receivable    55,000.00 b. Accounts Receivable      4,600.00 Allowance for Uncollectible Account      4,600.00 c. Cash      4,600.00    Accounts Receivable      4,600.00 Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. a. Bad Debts    36,600.00 Allowance for Uncollectible Account    36,600.00 Bad Debts expense = $1,830,000 X 2% = $36,000 b. Bad Debts    46,700.00 Allowance for Uncollectible Account    46,700.00 (See Note b) c. Bad Debts    54,314.00 Allowance for Uncollectible Account    54,314.00 (See Note c) Note b. Accounts Receivable Allowance for Uncollectible Accounts Beg. Bal.        558,000.00    1,910,000.00 Cash Beg. Bal.      46,000.00 Sales    1,830,000.00          55,000.00 Allowance Accounts Receivable    55,000.00        4,600.00 Accounts Receiavble Allowance            4,600.00            4,600.00 Cash      46,700.00 Bad debt (Bal. Fig) End. Bal.        423,000.00 End. Bal.      42,300.00 Allowance For Uncollectible accounts = $423,000 X 10% Allowance For Uncollectible accounts = $42,300 Note c. Accounts Receivable Allowance for Uncollectible Accounts Beg. Bal.        558,000.00    1,910,000.00 Cash Beg. Bal.      46,000.00 Sales    1,830,000.00          55,000.00 Allowance Accounts Receivable    55,000.00        4,600.00 Accounts Receiavble Allowance            4,600.00            4,600.00 Cash      54,314.00 Bad debt (Bal. Fig) End. Bal.        423,000.00 End. Bal.      49,914.00 Days Outstanding Total 0-60 61-90 91-120 Over 120 % of Year End receivable 60% 10% 20% 10% Accounts Receivable    253,800.00      42,300.00      84,600.00    42,300.00    423,000.00 % Uncollectible 3% 5% 25% 45% Amount Uncollectible        7,614.00        2,115.00      21,150.00    19,035.00      49,914.00 Answer 3. Case a. Case b. Case c. Accounts Receivable    423,000.00    423,000.00    423,000.00 Allowance for Uncollectible Account    (36,600.00)    (42,300.00)    (49,914.00) Net Accounts Receivable    386,400.00    380,700.00    373,086.00

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