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,
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 2020 balance sheet disclosed the following:
Current assets: | ||
Receivables, net of allowance for uncollectible accounts of $33,000 | $ | 447,000 |
During 2021, credit sales were $1,765,000, cash collections from customers $1,845,000, and $38,000 in accounts receivable were written off. In addition, $3,300 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
Percentage of Year-End | Percent | |||
Age Group | Receivables in Group | Uncollectible | ||
060 days | 70 | % | 5 | % |
6190 days | 20 | 15 | ||
91120 days | 5 | 20 | ||
Over 120 days | 5 | 40 | ||
Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:
- Bad debt expense is estimated to be 4% of credit sales for the year.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by aging of accounts receivable.
3. For situations (a)(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
2-)) Miller Company reported the following information in its 2017 financial statements ($ in millions):
2017 | 2016 | |||||
Balance Sheet: | ||||||
Accounts receivable, net | $ | 3,149.8 | $ | 2,177.0 | ||
Income statement: | ||||||
Sales revenue | $ | 19,482.6 | ||||
A note disclosed that the allowance for uncollectible accounts had a balance of $45.4 million and $42.1 million at the end of 2017 and 2016, respectively. Bad debt expense for 2017 was $32.4 million. Required:
Determine the amount of cash collected from customers during 2017. (All sales are on credit. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
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