Question
Problem 7-4 Uncollectible accounts [LO7-5, 7-6] Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense
Problem 7-4 Uncollectible accounts [LO7-5, 7-6]
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 companys fiscal year-end. The 2015 balance sheet disclosed the following: |
Current assets: | |||||
Receivables, net of allowance for uncollectible accounts of $41,000 $487,000 | |||||
|
During 2016, credit sales were $1,805,000, cash collections from customers $1,885,000, and $50,000 in accounts receivable were written off. In addition, $4,100 was collected from a customer whose account was written off in 2015. An aging of accounts receivable at December 31, 2016, reveals the following: |
Percentage of Year-End | Percent | ||||
Age Group | Receivables in Group | Uncollectible | |||
060 days | 65 | % | 4% | ||
6190 days | 15 | 10 | |||
91120 days | 15 | 30 | |||
Over 120 days | 5 | 50 | |||
|
Required: |
1. | Prepare summary journal entries to account for the 2016 write-offs and the collection of the receivable previously written off. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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 3% 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. |
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) | |
3. | For situations (a)(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2016 balance sheet? |
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