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 3% 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 $800,000 and the allowance account had a credit balance of $100,000. Accounts receivable activity for 2021 was as follows: Beginning balance S Credit sales Collections Write-offs Ending balance 800,000 4,200,000 (4,000,000) (100,000) 900,000 The company's controller prepared the following aging summary of year-end accounts receivable: Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Amount $300,000 200,000 100,000 300,000 $900,000 Summary Percent Uncollectible 10% 20 30 50 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. What is total bad debt expense for 2021? How would accounts receivable appear in the 2021 balance sheet?
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 3% 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 $800,000 and the allowance account had a credit balance of $100,000. Accounts receivable activity for 2021 was as follows: Beginning balance S Credit sales Collections Write-offs Ending balance 800,000 4,200,000 (4,000,000) (100,000) 900,000 The company's controller prepared the following aging summary of year-end accounts receivable: Age Group 0-60 days 61-90 days 91-120 days Over 120 days Total Amount $300,000 200,000 100,000 300,000 $900,000 Summary Percent Uncollectible 10% 20 30 50 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. What is total bad debt expense for 2021? How would accounts receivable appear in the 2021 balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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Transcribed Image Text: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 3% 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 $800,000 and the allowance account
had a credit balance of $100,000. Accounts receivable activity for 2021 was as
follows:
Beginning balance S
Credit sales
Collections
Write-offs
Ending balance
800,000
4,200,000
(4,000,000)
(100,000)
900,000
The company's controller prepared the following aging summary of year-end
accounts receivable:
Age Group
0-60 days
61-90 days
91-120 days
Over 120 days
Total
Amount
$300,000
200,000
100,000
300,000
$900,000
Summary
Percent Uncollectible
10%
20
30
50
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. What is total bad debt expense for 2021? How would accounts receivable appear
in the 2021 balance sheet?
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