Question

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $630,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $33,000 at the beginning of 2021 and $21,500 in receivables were written off during the year as uncollectible. Also, $1,300 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.

Answer 1

Journal Entries:

Write-off of Receivables:

Debit: Allowance for Doubtful Accounts $21,500

Credit: Accounts Receivable $21,500

Collection of Previously Written-Off Receivables:

Debit: Accounts Receivable $1,300

Credit: Allowance for Doubtful Accounts $1,300

Year-End Adjusting Entry for Bad Debt Expense:

Debit: Bad Debt Expense $63,000

Credit: Allowance for Doubtful Accounts $63,000

Balance Sheet:

Accounts Receivable: $630,000 - $21,500 + $1,300 = $609,800

Allowance for Doubtful Accounts: $33,000 - $21,500 + $1,300 + $63,000 = $74,800

Step-by-step explanation:

The first entry records the write-off of uncollectible accounts as a decrease in Accounts Receivable and an increase in the Allowance for Doubtful Accounts.

The second entry reflects the collection of a previously written-off account, reducing the Allowance for Doubtful Accounts and increasing Accounts Receivable.

The year-end adjusting entry estimates the bad debt expense for the year by applying 10% to the year-end accounts receivable and increasing both Bad Debt Expense and the Allowance for Doubtful Accounts.

In the balance sheet, Accounts Receivable is shown at net realizable value, which is the gross amount minus the allowance for uncollectible accounts.

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Complete Question

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $630,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $33,000 at the beginning of 2021 and $21,500 in receivables were written off during the year as uncollectible. Also, $1,300 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:

Prepare journal entries to record the write-off of receivables, the collection of $1,300 for previously written off receivables, and the year-end adjusting entry for bad debt expense.

How would accounts receivable be shown in the 2021 year-end balance sheet?

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