Question

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 uncollectible accounts had a credit balance of $32,000 at the beginning of 2021 and $21,000 in receivables were written 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:
Prepare journal entries to record the write-off of receivables, the collection of Sl,200 for previously written off receivables, and the year-end adjusting entry for bad debt expense.

Answer 1

Answer and Explanation:

The journal entries are shown below:

Allowance for uncollectible accounts $21,000

To Account receivable $21,000

(being written off is recorded)

Account receivable Dr $1,200

To Allowance for uncollectible accounts $1,200

(Being written back of receivable is recorded)

Cash Dr $1,200

To Account receivable $1,200

(being cash received is recorded)

Bad debt expense $50,300 ($32,000 - $21,000 + $1,200 - $625,000 × 0.10)

To Allowance for uncollectible accounts $50,300

(being the bad debt expense is recorded)