Raintree Cosmetic Company sells its products to customers on a credit basis. An
ID: 2520310 • 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 $43,000 $ 497,000 During 2018, credit sales were $1,815,000, cash collections from customers $1,895,000, and $52,000 in accounts receivable were written off. In addition, $4,300 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 Receivables in Group 60% 10 20 10 Percent Age Group 0-60 days 3% 61-90 days 91-120 days 25 45 Over 120 days 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: a. Bad debt expense is estimated to be 2% of credit sales for the year. b. 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. c. 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
Req 1: Journal entries: Allowance for uncollectible account Dr. 52000 Accounts receivable 52000 Accounts receivable Dr. 4300 Allowance for uncollectible accounts 4300 Cash Account Dr. 4300 Accounts receivable 4300 Req 2: Case-a Bad debts expense Dr. 36300 Allowance fr uncollectible Accounts 36300 Case-b: Bad debts expense Dr. 45500 Allowance fr uncollectible Accounts 45500 Note: Balance in Accounts receivable: Beginning balance 540000 Add: Sales 1815000 Less; collection 1895000 Less: Write off 52000 Ending balance 408000 Required balance in Allowance: 408000 *10% = 40800 Balance in Allowance: Beginning 43000 Add: Reinstated 4300 Lless: Wwrite off 52000 Existing balance -4700 Required balance 40800 Bad debts expense 45500 Case-c: Bad debts expense Dr. 52844 Allowance fr uncollectible Accounts 52844 Estimated allowance at the end: Age group Accounts receivable balancec Estimated % Estimated allowance 0-60 244800 3% 7344 61-90 40800 5% 2040 91-120 81600 25% 20400 Over 120 days 40800 45% 18360 Required balance 48144 Add: Existing balance 4700 Bad debts expense 52844 Req C: Net realizable Accounts receivable: Case-a: Accounts receivable Ggross 408000 Less: Allowance 31600 (36300-4700) Net value of AR 376400 Case-b: Accounts receivable Ggross 408000 Less: Allowance 40800 Net value of AR 367200 Case-c: Accounts receivable Ggross 408000 Less: Allowance 48144 Net value of AR 359856
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