SDLI, Inc. grants its customers 30 days credit. The company uses the allowance m
ID: 2598741 • Letter: S
Question
SDLI, Inc. 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 2015, accounts receivable were $1,250,000 and the allowance account had a credit balance of $106,000. Accounts receivable activity for 2016 was as follows:
Beginning balance $1,250,000
Credit sales 3,800,000
Collections (3,745,000)
Write-offs (82,000)
Ending balance $1,223,000
The company’s controller prepared the following aging summary of year-end accounts receivable:
Summary
Percent
Age Group
Amount
Uncollectible
0-60 days
$ 825,000
2%
61-90 days
220,000
10%
91-120 days
50,000
30%
Over 120 days
128,000
40%
Total
$1,223,000
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. What is total bad debt expense for 2016? How would accounts receivable appear in the 2016 balance sheet?
Summary
Percent
Age Group
Amount
Uncollectible
0-60 days
$ 825,000
2%
61-90 days
220,000
10%
91-120 days
50,000
30%
Over 120 days
128,000
40%
Total
$1,223,000
Explanation / Answer
Allowance for doubtful accounts aging method Accounts receivable % Amount 0-60 days 825000 2% 16500 61-90 Days 220000 10% 22000 91-120 Days 50000 30% 15000 over 120 days 128000 40% 51200 1223000 104700 As per aging method current balance should be 104700 the current balance is allowance for doubtful 24000 (106000-82000) Bad debt expense 80700 Bad debt expense 80700 Allowance for doubtful accounts 80700 Allownace for doubtful accounts Beginning bal. 106000 Bad debt 80700 Write off 82000 Ending balance 104700 Accounnts receivable gross 1223000 Allowance for doubtful accounts 104700 Net accounts receivable 1118300
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