Question

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2016, accounts receivable totaled $720,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $51,000 at the beginning of 2016 and $30,500 in receivables were written off during the year as uncollectible. Also, $3,100 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 $3,100 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.)

Answer 1

Answer:

                             Journal

Date  Account Titles and Explanation             Debit       Credit

         Allowance for uncollectible accounts    $30,500

                  Accounts Receivables                                       $30,500

          (To write off uncollectibles during the year)

                             Journal

Date  Account Titles and Explanation                       Debit       Credit

         Account receivables                                          $3,100

                 Allowance for uncollectible accounts                      $3,100

         (To reinstate receivables written off earlier)

                             Journal

Date  Account Titles and Explanation             Debit       Credit

          Cash                                                         $3,100

               Account receivables                                            $3,100

           (To record the recovery of bad debts)

                             Journal

Date  Account Titles and Explanation             Debit       Credit

          Bad debt expenses                                 $48,000

                Allowance for uncollectible accounts              $48,000

          (To record bad debts expenses)

Workings

Closing allowance = Opening allowance - Receivables written off + Receivables reinstated = $51,000 - $30,500 + $3,100 = $23,600

Expenses Bad debt = Receivables at the end of 2016 * Estimated percentage = $720,000 * 10% = $72,000

Allowance to be created = Estimated bad debts - Balance of Allowance at year end = $72,000 - $23,600 = $48,400