P 7-4 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 2020 balance sheet disclosed the following: Uncollectible accounts • LO7-5, LO7-6 Current assets: $432,000 Receivables, net of allowance for uncollectible accounts of $30,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was writ- ten off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Receivables in Group Percent Age Group Uncollectible 0-60 days 65% 4% 61-90 days 91-120 days Over 120 days 15 10 25 40 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previ- ously written off. 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 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. c. 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 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 2021 balance sheet?
P 7-4 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 2020 balance sheet disclosed the following: Uncollectible accounts • LO7-5, LO7-6 Current assets: $432,000 Receivables, net of allowance for uncollectible accounts of $30,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was writ- ten off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Receivables in Group Percent Age Group Uncollectible 0-60 days 65% 4% 61-90 days 91-120 days Over 120 days 15 10 25 40 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previ- ously written off. 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 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. c. 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 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 2021 balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:P 7-4
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 2020 balance sheet disclosed the
following:
Uncollectible
accounts
• LO7-5, LO7-6
Current assets:
$432,000
Receivables, net of allowance for uncollectible accounts of $30,000
During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in
accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was writ-
ten off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
Percentage of Year-End
Receivables in Group
Percent
Age Group
Uncollectible
0-60 days
65%
4%
61-90 days
91-120 days
Over 120 days
15
10
25
40
Required:
1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previ-
ously written off.
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 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.
c. 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 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 2021 balance sheet?
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