Question
Swathmore Clothing Corporation grants its customers 30 days credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly
Swathmore Clothing Corporation 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 2020, accounts receivable were $604,000 and the allowance account had a credit balance of $68,000. Accounts receivable activity for 2021 was as follows:
Beginning balance | $ | 604,000 | ||
Credit sales | 2,770,000 | |||
Collections | (2,633,000 | ) | ||
Write-offs | (54,000 | ) | ||
Ending balance | $ | 687,000 | ||
The companys controller prepared the following aging summary of year-end accounts receivable:
Summary | ||||
Age Group | Amount | Percent Uncollectible | ||
060 days | $ | 445,000 | 4 | % |
6190 days | 72,000 | 12 | ||
91120 days | 64,000 | 23 | ||
Over 120 days | 106,000 | 38 | ||
Total | $ | 687,000 | ||
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-a. What is total bad debt expense for 2021? 3-b. How would accounts receivable appear in the 2021 balance sheet?
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