Chapter 7, Problem 7.1P

Uncollectible accounts; allowance method; income statement and balance sheet approach

• LO7–5, LO7–6

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 2017, accounts receivable were $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2018 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. 1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. 2. Prepare the necessary year-end adjusting entry for bad debt expense.
3. 3. What is total bad debt expense for 2018? How would accounts receivable appear in the 2018 balance sheet?