Colorado Rocky Cookie Company offers credit terms to its customers. At the end o
ID: 2510456 • Letter: C
Question
Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2018, accounts receivable totaled $675,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2018 and $26,000 in receivables were written off during the year as uncollectible. Also, $2,200 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 $2,200 for previously written off receivables, and the year-end adjusting entry for bad debt expense 2. How would accounts receivable be shown in the 2018 year-end balance sheet?Explanation / Answer
(1).
S.No.
Accounts Title & Explanation
Debit
Credit
1.
Allowance for doubtful accounts
$26000
Accounts receivable
$26000
(For recording write-off accounts receivable)
2.
Accounts receivable
$2200
Allowance for doubtful accounts
$2200
(For recording reinstatement of previous written-off accounts receivable)
Cash
$2200
Accounts receivable
$2200
(For recording receipts of cash from previous written-off accounts receivable
3.
Bad debt expense
$49300
Allowance for doubtful accounts
$49300
(For recording additional allowance for doubtful accounts)
Working note;
1. Bad debt expense is calculated as follow;
Minimum required balance at the end of year ($675000 * 0.10) = $67500
Available balance in allowance for doubtful accounts ($42000 + $2200 – $26000) = $18200
Thus additional allowance for doubtful accounts to be made ($67500 - $18200) = $49300
(2).
Balance Sheet (Abstract)
Accounts receivable
$675000
Less: Allowance for doubtful accounts
($67500)
Net accounts receivable
$607500
S.No.
Accounts Title & Explanation
Debit
Credit
1.
Allowance for doubtful accounts
$26000
Accounts receivable
$26000
(For recording write-off accounts receivable)
2.
Accounts receivable
$2200
Allowance for doubtful accounts
$2200
(For recording reinstatement of previous written-off accounts receivable)
Cash
$2200
Accounts receivable
$2200
(For recording receipts of cash from previous written-off accounts receivable
3.
Bad debt expense
$49300
Allowance for doubtful accounts
$49300
(For recording additional allowance for doubtful accounts)