Question

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following: Current assets: $ 487.000 Receivables, net of allowance for uncollectible accounts of $41,000 During 2021, credit sales were $1,805,000, cash collections from customers $1,885,000, and $50,000 in accounts receivable were written off. In addition, $4,100 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 65% 15 15 5 Percent Uncollectible 4% Age Group 0-60 days 61-90 days 91-120 days Over 120 days 10 30 50 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. Bad debt expense is estimated to be 3% of credit sales for the year b. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. c. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. 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? Complete this question by entering your answers in the tabs below. Required 3 Required 1 Required 2 For situations (a)-(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet? Net account receivable reported а. b. с.

Answer 1

Solutions :

2 Credit Solution 1 Journal Entry 1 - Raintree Cosmetic Company Event Particulars Debit 1 Allowance for doubtful accounts Dr $50,000 To Accounts receivables (To record written of accounts receivables) $50,000 600 V $4,100 Accounts receivables Dr To Allowance for doubtful accounts (To reinstate account previously written off) $4,100 $4,100 $4,100 Cash Dr To Accounts receivables (To record collection of accounts previously written off) SOLUTION 2: ending balance of Gross accounts receivable = -487000+41000+1805000-1885000-50000 = $398,000 Ending unadjusted balance of allowance for doubtful account = =41000-50000+4100 = $4900 Debit balance Credit Event a Journal Entry 2 - Raintree Cosmetic Company Particulars Debit Bad debts Expense Dr ($1,805,000*3%) $54,150.00 To Allowance for doubtful accounts (To record bad debts expense) $54,150.00 $44,700.00 Bad debts Expense Dr ($398,000*10% + $4900) To Allowance for doubtful accounts (To record bad debts expense) $44,700.000 $49,078.00 31 32 Bad debts Expense Dr ($44178+ $4900) (Note 1) To Allowance for doubtful accounts (To record bad debts expense) $49,078.001 33 34 35 Note 1 Ageing 0-60 days 61-90 days 91-120 days Over 120 days Total Computation of Allowance for Uncollectible Accounts % of year end receivables ccounts Receivable Uncollectible Required Allowance in Group 65% $258,700.00 4% $10,348.00 15% $59,700.00 10% $5,970.00 15% $59,700.00 30% $17,910.00 5% $19,900.00 50% $9,950.00 $398,000.00 $44,178.00 SOLUTION 3: a. ($54150-$4900) 1. ($398000*10%) Accounts recivable $398,000 $398,000 $398,000 Ending Allowance Net realizable Accounts Balance I value $49,250 $348,750 $39,800 $358,200 $44,178 $353,822 Sheet954 Sheet36 (21) Sheet635 Sheet636 She