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

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 2% 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 2017, accounts receivable were $610,000 and the allowance account had a credit balance of $74,000. Accounts receivable activity for 2018 was as follows:

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

Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. Prepare the necessary year-end adjusting entry for bad debt expense.
3-a. What is total bad debt expense for 2018?
3-b. How would accounts receivable appear in the 2018 balance sheet?

Beginning balance $ 610,000 Credit sales 2,800,000 Collections (2,663,000 ) Write-offs (57,000 ) Ending balance $ 690,000

Explanation / Answer

Req 1. Journal Entries: S.No. Accounts title and explanations Debit Credit 1 Bad debts accruals Dr. (2800,000*2%) 56,000       Allowance for Uncollectible Accounts 56,000 (for accruals of bad debt) 2 Allowance for Uncollectible Accounts Dr. 57,000        Accounts receivable 57,000 (for write off) Req 2 3 Bad debts expense Dr. 65370      Allowance for Uncollectible Accounts 9370      Bad debts accruals 56000 (for maintaining the allowance account balance and closing the bad debts accruals) Note: Required balance in Allowance accounts: Age-group Amount % Uncollectible Estimated Allowance required 0-60 days 460,000 4% 18400 61-90 dys 78,000 15% 11700 91-120 days 67,000 26% 17420 over 120 days 85,000 41% 34850 690,000 82370 Allowance accounts actual balance: Beginning balance 74000 Add: Accruals 56000 Less: Write off -57000 Balance in hand 73000 Required balance 82370 Transferred to Allowance 9370 Req 3: Total Bad debts expense: Transfer to allowance at the end: 9370 Add: Transfer to allowance through accruals 56000 Bad debts expense 65370 Req 4: Accounts receivable balance in Balance Ssheet Accounts receivable (Gross) 690,000 Less; Allowance for uncollectible Accounts 82370 Accounts receivable balance (net) 607,630

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