Colorado Rocky Cookie Company offers credit terms to its customers. At the end o
ID: 2564286 • Letter: C
Question
Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2018, 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 2018 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: 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 2018 year-end balance sheet? Complete this question by entering your answers in the tabs below Required 1 Required 2 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction listExplanation / Answer
Write-off of receivables
Dr Allowance for Doubtful Accounts 21,000
Cr Accounts Receivable 21,000
Collection of previously written off receivables
Dr Accounts Receivable 1,200
Cr Allowance for Doubtful Accounts 1,200
Dr Cash 1,200
Cr Accounts receivable 1,200
Year-end adjusting entry
At the end of the year, Accounts Receivable totaled $625,000. Bad debts were estimated to be 10% of that, so 625,000 x 10% = 62,500. Allowance for Doubtful Accounts (ADR) had a credit balance of $32,000 at the start of the year. If you look at the journal entries above ADR was debited for 21,000 and credited for 1,200. This leaves a credit balance of $12,200 in ADR. So when using percentage of receivables as the basis for making the adjusting entry, you will make an entry that will make the ending balance of ADR equal to the estimated bad debts (62,500). So the entry would be:
Dr Bad Debt Expense 50,300
Cr Allowance for Doubtful Accounts 50,300
With that entry, ADR now has a credit balance of 62,500
2) How would accounts receivable be shown in the 2011 year-end balance sheet?
Accounts Receivable are shown net of Allowance for Doubtful Accounts:
$625,000 - 50,300 = $574,700