Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following. 1. Sales revenue for 2020, $468,000, of which one-sixth was on account. 2. Allowance for doubtful accounts, balance December 31, 2019, $2,340 credit. 3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $46,930. 4. Uncollectible accounts to be written off, December 31, 2020, $2,730. 5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off. Status Amount Not past due Remainder Past due 1–60 days $10,400 Past due over 60 days 7,800 Required a. Prepare the 2020 entry to write off the uncollectible accounts. b. Prepare the 2020 adjusting entry to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. Note: Treat each of the following scenarios separately, they are independent of one another. 1. Bad debt expense is based on credit sales, 1.5%. (Hint: See p. 8-19: Alternative to Estimating Net Realizable Value) 2. The Allowance for Doubtful accounts is based on total receivables at year-end, 2.5%. 3. The Allowance for Doubtful accounts is based on aging schedule: not past due, 0.5%; past due 1–60 days, 1%; and past due over 60 days, 8%. 4. Bad debt expense is based on direct write-off method (assume entry in part a has not been recorded). c. Prepare the 2020 balance sheet disclosure relating to accounts receivable for each assumption 1 through 4 of part b. a. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer b. Note: Treat each scenario separately, they are independent of one another. 1. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer 2. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer 3. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer 4. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer c. Note: Do not use negative signs with your answers. Balance Sheet, December 31, 2020 1 2 3 4 Accounts receivable Answer Answer Answer Answer Less: Allowance for doubtful accounts Answer Answer Answer Answer Accounts receivable, net Answer Answer Answer Answer Please answer all parts of the question.
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.
Estimating and Recording
At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following.
1. Sales revenue for 2020, $468,000, of which one-sixth was on account.
2. Allowance for doubtful accounts, balance December 31, 2019, $2,340 credit.
3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $46,930.
4. Uncollectible accounts to be written off, December 31, 2020, $2,730.
5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off.
| Status | Amount |
|---|---|
| Not past due | Remainder |
| Past due 1–60 days | $10,400 |
| Past due over 60 days | 7,800 |
Required
a. Prepare the 2020 entry to write off the uncollectible accounts.
b. Prepare the 2020
1. Bad debt expense is based on credit sales, 1.5%. (Hint: See p. 8-19: Alternative to Estimating Net Realizable Value)
2. The Allowance for Doubtful accounts is based on total receivables at year-end, 2.5%.
3. The Allowance for Doubtful accounts is based on aging schedule: not past due, 0.5%; past due 1–60 days, 1%; and past due over 60 days, 8%.
4. Bad debt expense is based on direct write-off method (assume entry in part a has not been recorded).
c. Prepare the 2020
a.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, 2020 | Answer |
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Answer
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b. Note: Treat each scenario separately, they are independent of one another.
1.
| Date | Account Name | Dr. | Cr. |
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| Dec. 31, 2020 | Answer |
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2.
| Date | Account Name | Dr. | Cr. |
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| Dec. 31, 2020 | Answer |
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Answer
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3.
| Date | Account Name | Dr. | Cr. |
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| Dec. 31, 2020 | Answer |
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4.
| Date | Account Name | Dr. | Cr. |
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| Dec. 31, 2020 | Answer |
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c.
Note: Do not use negative signs with your answers.
| Balance Sheet, December 31, 2020 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Accounts receivable | Answer | Answer | Answer | Answer |
| Less: Allowance for doubtful accounts | Answer | Answer | Answer | Answer |
| Accounts receivable, net | Answer | Answer | Answer | Answer |
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