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 $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2021 was as follows: Beginning balance $ 574,000 Credit sales 2,620,000 Collections (2,483,000 ) Write-offs (68,000 ) Ending balance $ 643,000 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary Age Group Amount Percent Uncollectible 0–60 days $ 430,000 4 % 61–90 days 98,000 15 91–120 days 60,000 25 Over 120 days 55,000 40 Total $ 643,000 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2021 was as follows:


Beginning balance	$	574,000
Credit sales		2,620,000
Collections		(2,483,000	)
Write-offs		(68,000	)
Ending balance	$	643,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group		Amount	Percent Uncollectible
0–60 days	$	430,000	4	%
61–90 days		98,000	15
91–120 days		60,000	25
Over 120 days		55,000	40
Total	$	643,000

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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