Chapter 9, Problem P9.42PS

Accounting for uncollectible accounts using the allowance method and reporting net accounts receivable on the balance sheet

Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following January transactions for Crystal Clear:

Jan. 1 Performed cleaning service for Debbie's D-list for $9,000 on account with terms 3/10, n/20.

10 Borrowed money from High Roller Bank, $20,000, making a 180 day, 15% note.

12 After discussions with Merry Cleaners, Crystal Clear has determined that $275 of the receivable owed will not be collected. Wrote off this portion of the receivable.

15 Sold goods to Westford for $8,000 on account with terms 5/10, n/30. Cost of Goods Sold was $400.

28 Sold goods to Meaghan, Inc. for cash of $2,000 (cost $350).

28 Collected from Merry Cleaners, $275 of receivable previously written off.

29 Paid cash for utilities of $450.

31 Created an aging schedule for Crystal Clear for accounts receivable. Crystal Clear determined that $8,100 of receivables were 5% uncollectible, $9,775 of receivables were 15% uncollectible, and $850 of receivables were 30% uncollectible. Crystal Clear determined the total amount of estimated uncollectible receivables and adjusted the Allowance for Bad Debts assuming a credit balance of $240 in the account. (Round to nearest whole dollar.)

Requirements

1. Prepare all required journal entries for Crystal Clear.

2. Show how net accounts receivable would be reported on the balance sheet as of January 31, 2018.