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26 May, 14:46

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $700,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $47,000 at the beginning of 2021 and $28,500 in receivables were written off during the year as uncollectible. Also, $2,700 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 15% to accounts receivable at the end of the year. Required: 1. Prepare journal entries to record the write-off of receivables, the collection of $2,700 for previously written off receivables, and the year-end adjusting entry for bad debt expense.

2. How would accounts receivable be shown in the 2016 year-end balance sheet?

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  1. 26 May, 16:48
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    The correct answer for option (a) is shown below and for option (b) is $595,000.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    (a). The journal entries are shown as follows:

    Uncollectible Allowance A/c Dr. $28,500

    To Accounts receivable A/c. $28,500

    (Being write-off of receivables recorded)

    Accounts receivable A/c Dr. $2,700

    To Uncollectible Allowance A/c. $2,700

    Cash A/c Dr. $2,700

    To Accounts receivable A/c. $2,700

    (Being collection of $2,700 recorded)

    Bad debt expense A/c Dr. $83,800

    To Uncollectible Allowance A/c. $83,800

    (Being bad debt expense is recorded)

    Computation:

    Beginning Allowance Balance $47,000

    Amount recovered (Add) $2,700

    Amount written off (Less) $28,500

    So, Allowance Balance $21,200

    Required balance $105,000 ($700,000 * 15%)

    So, Bad debts expense $83,800

    (b).

    Accounts receivable $700,000

    Allowance Balance (Less) $105,000

    Net Accounts receivable $595,000
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