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Swathmore Clothing Corporation grants its customers 30 days’ credit. The company

ID: 2416193 • 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 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary 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

What is total bad debt expense and accounts receivable (net) for 2016?

Explanation / Answer

Total Bad Debt expenses:

Write-offs = $ 68,000

Allowance Account = (68,900 - 54,000) = $ 14,900

Total Bad debts = 68000+14900 = $ 82,900

Allowance account calculation:

as per above table, Uncollectable = $ 68,900

But, opening balace = $ 54,000

Net allowance maintained, that is write off = 68900-54000 = $ 14900

B. Accounts Receivable (net) for 2016:

Ending Balance = $ 643,000

Allowance for bad debts = $ 68,900

Net Accounts Receivable = $ 574,100

Age Amount % Uncollectable Collectable 60 days 430000 17200 412800 90 days 98000 14700 83300 120 days 60000 15000 45000 > 120 Days 55000 22000 33000 Total 643000 68900 574100