Raintree Cosmetic Company sells its products to customers on a credit basis. An
ID: 2546141 • 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 $1,780,000, cash collections from customers $1,860,000, and $41,000 in accounts receivable were written off. In addition, $3,600 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 4% 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?
Current assets: Receivables, net of allowance for uncollectible accounts of $36,000 $ 462,000Explanation / Answer
1)
2)
Balance Of Accounts Receivable at end of 2018 : Beginning gross receivable +credit sales -collections -writeoff
[462000+36000]+1780000-1860000-41000
= 377000
Allowance for uncollectible accounts : 36000 beginning - 41000 writeoff +3600 reversed = -1400
Balance of uncollectible account as per aging method :[377000.70*.05]+[377000*.20*.15]+[377000*.05*.20]+[[377000*.05*.40]
= 13195+ 11310+3770+ 7540
= 35815
3)
Net realizable value =Gross receivable -allowance balance
A) 377000- 71200= $ 305800
B) 377000- 37700= $ 339300
C)377000-35815 = $ 341185
Date Account Debit credit 1 Allowance for uncollectible accounts 41000 Accounts receivable 41000 [being accounts written off] 2 Accounts receivable 3600 allowance for uncollectible accounts 3600 [being accounts writtten off earlier reversed] cash 3600 Accounts receivable 3600Related Questions
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