Accounts Receivable

Vaughn Co. makes most of its sales on a credit basis. Applying GAAP, Vaughn uses the allowance method to account for credit losses. The company adjusts its accounts just once a year, at the December 31 year-end. Consider the following balances pulled from Vaughns unadjusted trial balance at year-end 2020:

Account	Debit	Credit
Accounts receivable	5,187,490
Allowance for doubtful accounts	32,810

Vaughn prepared an aging of accounts at year-end 2020, as follows:

Age Group	Amount	Estimated % Uncollectible
0-30 days	$2,153,680	1.1%
31-60 days	1,392,510	4.6%
61-90 days	874,130	11.9%
91-120 days	461,290	18.4%
Over 120 days	305,880	43.7%
	$5,187,490

On March 19, 2021, Vaughn determined that it must write off a large receivable balance, amounting to $26,439.

Notes Receivable

On December 31, 2020, Vaughn received a 4-year, 3%, $27,935 promissory note as consideration in an inventory sale transaction on that date. The note requires the customer to pay interest annually on December 31 (2021 through 2024). The going market rate of interest for comparable notes on the issue date was 5%. Applying GAAP, Vaughn uses the effective-interest method to amortize premiums and discounts on all of its promissory notes.

Receivables Data Analytics

Below, you are provided information on the receivables and related allowance for credit losses for three members of the S&P 100. The information is provided for the years 2019, 2018 and 2017. All amounts are stated in millions of dollars.

Capital One Financial Corporation
	2017	2018	2019
Gross receivables, 12/31	254,473	238,679	265,809
Allowance for credit losses, 1/1	6,503	7,502	7,220
Write-offs	6,562	6,112	6,252
Bad debt expense	7,563	5,858	6,223
Other adjustments	2	28	17
Allowance for credit losses, 12/31	7,502	7,220	7,208

Citigroup Inc.
	2017	2018	2019
Gross receivables, 12/31	667,034	684,196	699,483
Allowance for credit losses, 1/1	12,060	12,355	12,315
Write-offs	7,076	7,113	7,768
Bad debt expense	7,503	7,354	8,218
Other adjustments	132	281	18
Allowance for credit losses, 12/31	12,355	12,315	12,783

Wells Fargo & Company
	2017	2018	2019
Gross receivables, 12/31	956,770	953,110	962,265
Allowance for credit losses, 1/1	12,540	11,960	10,707
Write-offs	2,928	2,744	2,762
Bad debt expense	2,528	1,744	2,687
Other adjustments	180	253	176
Allowance for credit losses, 12/31	11,960	10,707	10,456

Instructions

Using the information provided above, address each of the following matters related to receivables:

(a) Accounts receivable: <3.0>

(1) Give the adjusting entry Vaughn must make for bad debts at December 31, 2020.

(2) Give the entry Vaughn must make to record the write-off of the customer balance on March 19, 2021.

(b) Notes receivable: <7.0>

(1) Give the entry Vaughn must make to record the receipt of the 4-year promissory note on December 31, 2020.

(2) Give the interest and collection entries Vaughn must make over the remaining term of the 4-year note (through December 31, 2024). Tip You might find it helpful to start by preparing an amortization schedule (see pages 7-19 and 7-20).

(c) Receivables data analytics: <5.0>

(1) Compute the 12/31 allowance as a percentage of the 12/31 receivables for each company and year. Prepare a clustered column chart to show the yearly percentage for each company. Which company shows a decreasing percentage for both 2018 and 2019?

(2) Compute the 1/1 allowance as a percentage of the write-offs for each company and year. Prepare a clustered column chart to show the yearly percentage for each company. Which company shows a higher percentage for 2019 than for 2017?

(3) Compute the cumulative expense for 2017 to 2019 as a percentage of the cumulative write-offs for 2017 to 2019. Prepare a clustered column chart to show the percentage for each company. Which company appears to have forecast write-offs the most accurately over this three-year period? Explain in one sentence.