Question

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2023, accounts receivable were $590,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2024 was as follows:

Beginning balance $ 590,000
Credit sales 2,700,000
Collections (2,563,000)
Write-offs (47,000)
Ending balance $ 680,000
The company’s controller prepared the following aging summary of year-end accounts receivable:

Age Group Summary
Amount Percent Uncollectible
0−60 days $ 410,000 5%
61−90 days 97,000 11
91−120 days 57,000 27
Over 120 days 116,000 38
Total $ 680,000
Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.

2. Prepare the necessary year-end adjusting entry for bad debt expense.

3-a. What is total bad debt expense for 2024?

3-b. How would accounts receivable appear in the 2024 balance sheet?

Answer 1

1. The summary journal entry to record the monthly bad debt accrual and the write-offs during the year:

Debit Bad Debts Expense $81,000

Credit Allowance for Doubtful Accounts $81,000

(To record the summary monthly bad debt accrual.)

Debit Allowance for Doubtful Accounts $47,000

Credit Accounts Receivable $47,000

(To record the write-offs for the year.)

2. The necessary year-end adjusting entry for bad debt expense is as follows:

How the calculations are determined:

Debit Bad Debts Expense $2,640

Credit Allowance for Doubtful Accounts $2,640

(To record the year-end adjusting entry for bad debt expense.)

3-a. The total bad debt expense for 2024 is $83,640.

3-b. The accounts receivable in the 2024 balance sheet would appear as follows:

Balance Sheet 2024

Current Assets:

Accounts Receivable $680,000

Less Doubtful Accounts $90,640 $589,360

Accounts Receivable, beginning balance = $590,000 (debit)

Credit sales = $2,700,000

Collections (2,563,000)

Write-offs (47,000)

Ending balance $ 680,000

Allowance account, beginning balance = $54,000 (credit)

Age Group Summary Amount Percent Uncollectible Allowance

0−60 days $ 410,000 5% $20,500

61−90 days 97,000 11 10,670

91−120 days 57,000 27 15,390

Over 120 days 116,000 38 44,080

Total $ 680,000 $90,640

1) Monthly bad debt accrual for the year = $81,000 ($2,700,000 x 3%)

Bad Debts Expense $81,000 Allowance for Doubtful Accounts $81,000

Bad Debts Expense $2,640 Allowance for Doubtful Accounts $2,640

Allowance for Doubtful Accounts:

Beginning balance = $54,000

Less Write-offs 47,000

Bad Debts Expense $81,000

Bad Debts Expense 2,640

Ending balance $90,640

The total bad debt expense for 2024 = $83,640 ($81,000 + $2,640)