Colorado Rocky Cookie Company offers credit terms to its customers. At the end o
ID: 2564777 • Letter: C
Question
Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2018, accounts receivable totaled $725,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $52,000 at the beginning of 2018 and $31,000 in receivables were written off during the year as uncollectible. Also, $3,200 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 $3,200 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
Req 1: Journal Entries DR IN $ CR IN $ Bad debts Written off Dr. 31,000 Accounts receivable Cr. 31,000 (Accounts Receivable written off) Allowance for Doubtful debts Dr. 31,000 Bad debts written off Cr. 31,000 (Bad debts expense closed in Allowance account at year end) Cash Account Dr. 3,200 Bad debts recovered Account Cr. 3,200 (Cash received from csutomer previously written off) Income Statement Dr. 61,500 Allowance for Doubtful Debts Cr. 61,500 Note: Opening balance of Allowance for Doubtful debt 52,000 Less: Bad debts written off 31,000 Net balance in Allowance for doubtful debt 11,000 Balance to be maintained at the end 72,500 (10% of accounts receivable at end i.e. $ 725,000) Allowance for doubtfule debt to be created(72,500-11,000) 61,500 Req 2: Assets: Accounts receivable 725,000 Less: Allowance for doubtful debts 72,500 Net Accounts recievable to be shown in balance sheet 652,500