Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following: схpense is Current assets: Receivables, net of allowance for uncollectible accounts of $45,000$ 507,000 During 2021, credit sales were $1,825,000, cash collections from customers $1,905,000, and $54,000 in accounts receivabl were written off. In addition, $4,500 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 Receivables in Group Uncollectible Percent Age Group 0-60 days 61–90 days 91–120 days Over 120 days 70% 5% 20 15 20 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: a) Record accounts receivable written off during the year 2021. b) Record entry to reinstate an account receivable previously written off. c) Record collection of an account receivable previously written off. d) Bad debt expense is estimated to be 4% of credit sales for the year. e) 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. ) 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. 3. For situations (a)-(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following: схpense is Current assets: Receivables, net of allowance for uncollectible accounts of $45,000$ 507,000 During 2021, credit sales were $1,825,000, cash collections from customers $1,905,000, and $54,000 in accounts receivabl were written off. In addition, $4,500 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 Receivables in Group Uncollectible Percent Age Group 0-60 days 61–90 days 91–120 days Over 120 days 70% 5% 20 15 20 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: a) Record accounts receivable written off during the year 2021. b) Record entry to reinstate an account receivable previously written off. c) Record collection of an account receivable previously written off. d) Bad debt expense is estimated to be 4% of credit sales for the year. e) 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. ) 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. 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
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Transcribed Image Text:**Raintree Cosmetic Company Accounts Receivable Analysis**
**Overview:**
Raintree Cosmetic Company sells products to customers on a credit basis. An adjusting entry for bad debt expense is recorded annually on December 31, the company's fiscal year-end. The 2020 balance sheet included the following:
- **Current assets:**
- Receivables, net of allowance for uncollectible accounts of $45,000: $507,000
During 2021, the company had credit sales of $1,825,000 and received cash collections from customers totaling $1,905,000. Accounts receivable worth $54,000 were written off. An additional $4,500 was collected from a previously written-off account in 2020. An aging schedule for accounts receivable as of December 31, 2021, is shown below:
**Aging of Accounts Receivable (2021):**
| Age Group | Percentage of Year-End Receivables in Group | Percent Uncollectible |
|---------------|---------------------------------------------|-----------------------|
| 0–60 days | 70% | 5% |
| 61–90 days | 20% | 15% |
| 91–120 days | 5% | 20% |
| Over 120 days | 5% | 40% |
**Requirements:**
1. **Journal Entries:**
- Record the necessary entries for 2021 write-offs and the collection of previously written-off receivables.
2. **Year-End Adjusting Entries for Bad Debts:**
- Situations to consider:
a) Entries for accounts receivable written off during 2021.
b) Entries for reinstating a previously written-off receivable.
c) Entries for collecting a previously written-off receivable.
d) Bad debt expense is estimated as 4% of credit sales.
e) Bad debt expense based on realizable value of receivables with an allowance at 10% of year-end balance.
f) Bad debt expense based on realizable value with aging of accounts relevaing estimation.
3. **Net Accounts Receivable Calculation:**
- Determine the net accounts receivable reported for scenarios (a)-(c) as of December 31, 2021.
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