Intermediate Accounting
Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
bartleby

Concept explainers

bartleby

Videos

Textbook Question
Book Icon
Chapter 7, Problem 7.4P

Uncollectible accounts

• LO7–5, LO7–6

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 2017 balance sheet disclosed the following:

Current assets:

Receivables, net of allowance for uncollectible accounts of $30,000 $432,000

During 2018, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:

Age Group Percentage of Year-End Receivables in Group Percent Uncollectible
0–60 days 65% 4%
61–90 days 20 15
91–120 days 10 25
Over 120 days 5 40

Required:

  1. 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off.
  2. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:
    1. a. Bad debt expense is estimated to be 3% of credit sales for the year.
    2. b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
    3. c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
  3. 3. For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?

(1)

Expert Solution
Check Mark
To determine

Aging of receivables method:

A method of determining the estimated uncollectible receivables, based on the age of individual accounts receivable is known as aging of receivables method.

To prepare: A summary journal entries to account for the 2018 Write-offs and the collection of account receivables previously written off:

Explanation of Solution

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
  Allowance for uncollectible accounts   35,000  
  Accounts Receivable     35,000
  (To record the write-off of receivables)      

Table (1)

The collection of account receivables previously written-off:

  Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
    Accounts Receivable   3,000  
    Allowance for uncollectible accounts     3,000
    (To record the reinstate the debt previously written off as bad)      
   
  Cash   3,000  
  Accounts Receivable     3,000
  (To record the receipt of cash from the debt previously written off as bad)      

Table (2)

(2)(a)

Expert Solution
Check Mark
To determine

To prepare: The year-end adjusting entry for bad debts according to each of the following situation:

Explanation of Solution

Bad Debts Expense – Percent of Credit Sales:

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
  Bad Debts Expense   52,500  
  Allowance for uncollectible accounts     52,500
  (To record bad debts expense)      

Table (3)

Working note:

Compute the amount of monthly bad debts expense:

Bad Debts Expense = 3% of Credit Sales= $1,750,000 × 3%= $52,500

(b)

Expert Solution
Check Mark
To determine

Bad Debts Expense – Percent of Year Balance of Accounts Receivable:

Explanation of Solution

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
  Bad Debts Expense   36,700  
  Allowance for uncollectible accounts     36,700
  (To record bad debts expense)      

Table (4)

Compute the year-end balance of accounts receivable:

Accounts Receivable Accounts Analysis

Beginning balance including allowance [$432,000+$30,000]

$462,000

Add: Credit Sales 1,750,000
Less: Write-offs (35,000)
Less: Cash Collection (1,830,000)
Ending balance $347,000

Table (5)

Working note:

Compute the amount of monthly bad debts expense:

Bad Debts Expense = 10% of Year-end balance of accounts receivable= $347,000 × 10%= $34,700

Compute the bad debts expense:

Allowance for Uncollectible Accounts Analysis
Details Amount ($)
Beginning Balance $30,000
Add: Collections of receivable previously written off as bad 3,000
Less: Write-offs (35,000)
Balance before year-end Adjustments (2,000)
Less: Estimated Allowance (34,700)
Bad Debts Expense after Adjustments $36,700

Table (6)

(c)

Expert Solution
Check Mark
To determine

Entry Bad Debts Expense – Aging of Accounts Receivable

Explanation of Solution

Compute the estimated or targeted balance of Allowance for Uncollectible Accounts:

Estimated or targeted balance of Allowance for Uncollectible Accounts is determined by multiplying the estimated percentage of uncollectible with the estimated amount in each category.

R Company
Estimated Uncollected Accounts
31-Dec-18
Details Year End Accounts Receivable Percentage of Uncollectible Accounts of Year End Accounts Receivable Total Amount Percentage Considered Uncollectible Allowance for Doubtful Debts Accounts
($) ($) ($) (%) ($)
[B × C]
A B C D E F
0-60 Days Past Due $347,000 65% 225,550 4% 9,022
61-90 Days Past Due  347,000 20% 69,400 15% 10,410
91-120 days Past Due  347,000 10% 34,700 25% 8,675
Over 120 Days Past  347,000 5% 17,350 40% 6,940
Total 347,000 35,047

Table (7)

  • Compute the bad debts expense:
Allowance for Uncollectible Accounts Analysis
Details Amount ($)
Beginning Balance $30,000
Add: Collections of receivable previously written off as bad 3,000
Less: Write-offs (35,000)
Balance before year-end Adjustments (2,000)
Less: Estimated Allowance (35,047)
Bad Debts Expense after Adjustments $37,047

Table (8)

  • Record the Entry:
Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
  Bad Debts Expense   37,047  
  Allowance for uncollectible accounts     37,047
  (To record bad debts expense)      

Table (9)

(3)

Expert Solution
Check Mark
To determine
The net amount of accounts receivable reported in the 2018 balance sheet.

Explanation of Solution

The net amount of accounts receivable reported in the 2018 balance sheet is determined as follows:

  Amount ($) Amount ($) Amount ($)
Assets: (a) (b) (c)
Current assets:      
Accounts receivable 347,000 347,000 347,000
Less: Allowance for bad debts (a) (50,500) (34,700) (35,047)
  296,500 312,300 311,953

Table (10)

Working note:

Calculate year end allowance for situation (a)

Year End Allowance = Estimated Allowance  Debit Balance=$52,500$2,000=$50,500

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Exercise 7-13 (Algo) Uncollectible accounts; allowance method estimating bad debts as percentage of net sales vs. direct write-off method [LO7-5, 7-6] Ervin Company uses the allowance method to account for uncollectible accounts receivable. The allowance account is adjusted based on bad debt expense as a percentage of credit sales. For 2024, net credit sales totaled $5,600,000, and the estimated bad debt percentage is 1.70%. No previously written-off accounts receivable were reinstated during 2024. The allowance for uncollectible accounts had a credit balance of $53,000 at the beginning of 2024 and $45,500, after adjusting entries, at the end of 2024. Required: 1. What is bad debt expense for 2024 as a percent of net credit sales? 2. Assume Ervin makes no other adjustment of bad debt expense during 2024. Determine the amount of accounts receivable written off during 2024. 3. If the company uses the direct write-off method, what would bad debt expense be for 2024? 1. Bad debt expense as…
P 7-4 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: Uncollectible accounts • LO7-5, LO7-6 Current assets: $432,000 Receivables, net of allowance for uncollectible accounts of $30,000 During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was writ- ten off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Receivables in Group Percent Age Group Uncollectible 0-60 days 65% 4% 61-90 days 91-120 days Over 120 days 15 10 25 40 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previ- ously written off. 2. Prepare the year-end adjusting entry…
what is the definitions/general overview of error correction and a change in estimate

Chapter 7 Solutions

Intermediate Accounting

Ch. 7 - Prob. 7.11QCh. 7 - Is any special accounting treatment required for...Ch. 7 - Explain any possible differences between...Ch. 7 - Prob. 7.14QCh. 7 - What is meant by the discounting of a note...Ch. 7 - What are the key variables that influence a...Ch. 7 - Explain how the CECL model (introduced in ASU No....Ch. 7 - Prob. 7.18QCh. 7 - Prob. 7.19QCh. 7 - (Based on Appendix 7B) Marshall Companies, Inc.,...Ch. 7 - Prob. 7.21QCh. 7 - Prob. 7.1BECh. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Cash discounts; gross method LO73 On December 28,...Ch. 7 - Prob. 7.5BECh. 7 - Sales re turns LO74 During 2018, its first year...Ch. 7 - Sales re turns LO74 Refer to the situation...Ch. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Uncollectible accounts; balance sheet approach ...Ch. 7 - Uncollectible accounts; solving for unknown LO75,...Ch. 7 - Prob. 7.12BECh. 7 - Note receivable LO77 On December 1, 2018,...Ch. 7 - Long-term notes receivable LO74 On April 19,...Ch. 7 - Prob. 7.15BECh. 7 - Factoring of accounts receivable LO78 Refer to...Ch. 7 - Prob. 7.17BECh. 7 - Discounting a note LO78 On March 31, Dower...Ch. 7 - Receivables turnover LO78 Camden Hardwares credit...Ch. 7 - Prob. 7.20BECh. 7 - Prob. 7.21BECh. 7 - Impairments of Accounts Receivable Appendix 7B...Ch. 7 - Credit Losses on Accounts Receivable (CECL Model) ...Ch. 7 - Prob. 7.1ECh. 7 - Prob. 7.2ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Trade and cash discounts; the gross method and the...Ch. 7 - Prob. 7.6ECh. 7 - Cash discounts; the net method LO73 [This is a...Ch. 7 - Sales returns LO74 Halifax Manufacturing allows...Ch. 7 - Prob. 7.9ECh. 7 - Prob. 7.10ECh. 7 - Uncollectible accounts; allowance method; balance...Ch. 7 - Uncollectible accounts; allowance method and...Ch. 7 - Uncollectible accounts; allowance method; solving...Ch. 7 - Note receivable LO77 On June 30, 2018, the...Ch. 7 - Noninterest-bearing note receivable LO77 [This is...Ch. 7 - Long-term notes receivable LO77 On January 1,...Ch. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Factoring of accounts receivable with recourse ...Ch. 7 - Factoring of accounts receivable with recourse...Ch. 7 - Discounting a note receivable LO78 Selkirk...Ch. 7 - Concepts; terminology LO71 through LO78 Listed...Ch. 7 - Receivables; transaction analysis LO73, LO75...Ch. 7 - Prob. 7.25ECh. 7 - Prob. 7.26ECh. 7 - Prob. 7.27ECh. 7 - Prob. 7.28ECh. 7 - Prob. 7.29ECh. 7 - Prob. 7.30ECh. 7 - Impairments of Notes Receivable Appendix 7B At...Ch. 7 - Prob. 7.32ECh. 7 - Prob. 7.33ECh. 7 - Prob. 7.34ECh. 7 - Uncollectible accounts; allowance method; income...Ch. 7 - Uncollectible accounts; Amdahl LO75 Real World...Ch. 7 - Bad debts; Nike, Inc. LO75 Real World Financials...Ch. 7 - Uncollectible accounts LO75, LO76 Raintree...Ch. 7 - Prob. 7.5PCh. 7 - Notes receivable; solving for unknowns LO77...Ch. 7 - Prob. 7.7PCh. 7 - Prob. 7.8PCh. 7 - Prob. 7.9PCh. 7 - Prob. 7.10PCh. 7 - Prob. 7.11PCh. 7 - Accounts and notes receivable; discounting a note...Ch. 7 - Prob. 7.13PCh. 7 - Prob. 7.14PCh. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Prob. 7.17PCh. 7 - Prob. 7.1BYPCh. 7 - Prob. 7.2BYPCh. 7 - Prob. 7.3BYPCh. 7 - Real World Case 74 Sales returns; Green Mountain...Ch. 7 - Ethics Case 75 Uncollectible accounts LO75 You...Ch. 7 - Prob. 7.6BYPCh. 7 - Prob. 7.7BYPCh. 7 - Prob. 7.8BYPCh. 7 - Prob. 7.9BYPCh. 7 - Prob. 7.10BYPCh. 7 - Prob. 7.11BYPCh. 7 - Prob. 1CCTC
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Text book image
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Text book image
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Accounts Receivable and Accounts Payable; Author: The Finance Storyteller;https://www.youtube.com/watch?v=x_aUWbQa878;License: Standard Youtube License