BUSACC 0030 Study Guide - Midterm Guide: Net Income, Accounts Receivable, Gross Profit

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 $48,000 $ 522,000 During 2018, credit sales were $1,840,000, cash collections from customers $1,920,000, and $57,000 in accounts receivable were written off. In addition, $4,800 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 Percent Age Group Receivables in Group Uncollectible 0–60 days 70 % 5 % 61–90 days 20 15 91–120 days 5 20 Over 120 days 5 40 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?

Swathmore Clothing Corporation grants its customers 30 days’credit. The company uses the allowance method for its uncollectibleaccounts receivable. During the year, a monthly bad debt accrual ismade by multiplying 3% times the amount of credit sales for themonth. At the fiscal year-end of December 31, an aging of accountsreceivable schedule is prepared and the allowance for uncollectibleaccounts is adjusted accordingly. At the end of 2015, accountsreceivable were $574,000 and the allowance account had a creditbalance of $54,000. Accounts receivable activity for 2016 was asfollows: Beginning balance $ 574,000 Credit sales 2,620,000Collections (2,483,000) Write-offs (68,000) Ending balance $643,000 The company’s controller prepared the following agingsummary of year-end accounts receivable: Summary Age Group AmountPercent Uncollectible 0–60 days $ 430,000 4 % 61–90 days 98,000 1591–120 days 60,000 25 Over 120 days 55,000 40 Total $ 643,000

What is total bad debt expense and accounts receivable (net) for2016?

Swathmore Clothing Corporation grants its customers 30 days’credit. The company uses the allowance method for its uncollectibleaccounts receivable. During the year, a monthly bad debt accrual ismade by multiplying 3% times the amount of credit sales for themonth. At the fiscal year-end of December 31, an aging of accountsreceivable schedule is prepared and the allowance for uncollectibleaccounts is adjusted accordingly. At the end of 2015, accountsreceivable were $574,000 and the allowance account had a creditbalance of $54,000. Accounts receivable activity for 2016 was asfollows: Beginning balance $ 574,000 Credit sales 2,620,000Collections (2,483,000) Write-offs (68,000) Ending balance $643,000 The company’s controller prepared the following agingsummary of year-end accounts receivable: Summary Age Group AmountPercent Uncollectible 0–60 days $ 430,000 4 % 61–90 days 98,000 1591–120 days 60,000 25 Over 120 days 55,000 40 Total $ 643,000

What is total bad debt expense and accounts receivable (net) for2016?