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Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $625,000. The allowance method is used to account for uncollectible accounts. The allowance for uncol- lectible accounts had a credit balance of $32,000 at the beginning of 2021 and $21,000 in receivables were writ- ten off during the year as uncollectible. Also, $1,200 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year.
Required:
1. Prepare journal entries to record the write-off of receivables, the collection of $1,200 for previously written off receivables, and the year-end adjusting entry for bad debt expense.
2. How would accounts receivable be shown in the 2016 year-end balance sheet?

Sagot :

abiolataiwo2015

Answer:

1. 1. Dr Allowance for uncollectible accounts $21,000

Cr Accounts receivable $21,000

2. Dr Accounts receivable $1800

Cr Allowance for uncollectible accounts $1800

3. Dr Cash $1,200

Cr Accounts receivable $1,200

4. Dr Bad debt expense $50,300

Cr Allowance for uncollectible accounts $50,300

2.Current Assets

Accounts receivable (net) $562,500

Explanation:

1. Preparation of journal entries to record the write-off of receivables

1. Dr Allowance for uncollectible accounts $21,000

Cr Accounts receivable $21,000

(To record written off of accounts receivable)

2. Dr Accounts receivable $1800

Cr Allowance for uncollectible accounts $1800

(To record reinstatement of account previously written off)

3. Dr Cash $1,200

Cr Accounts receivable $1,200

(To record collection of account previously written off)

4. Dr Bad debt expense $50,300

Cr Allowance for uncollectible accounts $50,300

(To record bad debt expense for the year)

Working:

Estimated bad debts expense= $625,000*10%= $62,500

Bad debt expense for the year= $32,000-21000+1200-62,500= $50,300

2. Calculation to determine How would accounts receivable be shown in the 2016 year-end balance sheet

Using this formula

Accounts receivable (net) = Beginning balance-Estimated bad debts expense

Let plug in the formula

Accounts receivable (net)= $625,000-($625,000*10%)

Accounts receivable (net)=$625,000 -$62,500

Accounts receivable (net)=$562,500

Therefore the accounts receivable be shown in the 2016 year-end balance sheet as:

BALANCE SHEET (PARTIAL)

Current Assets

Accounts receivable (net) $562,500

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