Slide 22-12

Raintree Cosmetic Company sells its products to customers on acredit basis. An adjusting entry for bad debt expense is recordedonly at December 31, the company’s fiscal year-end. The 2017balance sheet disclosed the following:

Current assets;

         Receivables, net of allowance for uncollectible accounts of$33,000               $447,000

During 2018, credit sales were $1,765,000, cash collections fromcustomers $1,845,000, and $38,000 in accounts receivable werewritten off. In addition, $3,300 was collected from a customerwhose account was written off in 2017. An aging of accountsreceivable at December 31, 2018, reveals the following:

                                     

Age Group	Percentage of Year-End Receivables in Group	Percent Uncollectible
0-60 days	70%	5%
61-90 days	20	15
91-120	5	20
Over 120 days	5	40

Required:

1. Prepare summary journal entries to account for the 2018write-offs and the collection of the receivable previously writtenoff.
2. Prepare the year-end adjusting entry for bad debts according toeach of the following situations:

1. Bad debt expense is estimated to be 4% of credit sales for theyear.
2. Bad debt expense is estimated by computing net realizable valueof the receivables. The allowance for uncollectible accounts isestimated to be 10% of the year-end balance in accountsreceivable.
3. Bad debt expense is estimated by computing net realizable valueof the receivables. The allowance for uncollectible accounts isdetermined by an aging of accounts receivable.

3. For situations (a)-(c) in requirement 2 above, what would bethe net amount of accounts receivable reported in the 2018 balancesheet?

Complete the following questions byentering your answers below.

1. Prepare summary journal entries to account for the 2018write-offs and the collection of the receivable previously writtenoff. (If no entry is required for a transaction/event, write “Nojournal entry required” in the first account title.

1. Record accounts receivable written off during the year2018.
2. Record entry to reinstate an account receivablepreviously written off.
3. Record collection of an account receivable previouslywritten off.

2. Prepare the year-end adjusting entry for bad debts.

1. Bad debt expense is estimated to be 4% of credit salesfor the year.
2. Bad debt expense is estimated by computing netrealizable value of the receivables. The allowance foruncollectible accounts is estimated to be 10% of the year-endbalance in accounts receivable.
3. Bad debt expense is estimated by computing netrealizable value of the receivables. The allowance foruncollectible accounts is determined by an aging of accountsreceivable.

Note: Enter debits beforecredits.

Event	General Journal	Debit	Credit

Net account receivablereported

a.______________________

b.______________________

c.______________________