Moore company had an Accounts Receivable balance of $640,000 anda credit balance in allowance for Uncollectible Accounts of $33,400at January 1, 2011. During the year, the compnay recorded thefollowing transactions:
a. Sales on account $2,204,000
b. Sales returns and allowances by credit customers,$106,800
c. Collections from customers, $1,986,000
d. Worthless accounts written off $39,600
The company's past history indicates that 2.5 percent of its netcredit sales will not be collected.
1. Prepare T accounts for Accounts Receivable and Allowance forUncollectible Accounts. Enter the beginning balances, and show theeffects on these accounts of the items listed above, summarizingthe year's acitivity. Determine the ending balance of eachaccount.
2. Compute Uncollective Accounts Expense and determine theeneding balance of Allowance for Uncollectible Accounts under (a)the percentage of net sales method and (b) the accounts receivableaging method, assuming an aging of the accounts receivable showsthat $48,000 may be uncollectible.
3. Compute receivable turnover and day's sales uncollected,using the data from the accounts receivable aging method requiredin #2.
4. How do you explain that the two methods used in requirement 2result in different amounts for Uncollectible Accounts Expense?What rationale underlies each method?
Moore company had an Accounts Receivable balance of $640,000 anda credit balance in allowance for Uncollectible Accounts of $33,400at January 1, 2011. During the year, the compnay recorded thefollowing transactions:
a. Sales on account $2,204,000
b. Sales returns and allowances by credit customers,$106,800
c. Collections from customers, $1,986,000
d. Worthless accounts written off $39,600
The company's past history indicates that 2.5 percent of its netcredit sales will not be collected.
1. Prepare T accounts for Accounts Receivable and Allowance forUncollectible Accounts. Enter the beginning balances, and show theeffects on these accounts of the items listed above, summarizingthe year's acitivity. Determine the ending balance of eachaccount.
2. Compute Uncollective Accounts Expense and determine theeneding balance of Allowance for Uncollectible Accounts under (a)the percentage of net sales method and (b) the accounts receivableaging method, assuming an aging of the accounts receivable showsthat $48,000 may be uncollectible.
3. Compute receivable turnover and day's sales uncollected,using the data from the accounts receivable aging method requiredin #2.
4. How do you explain that the two methods used in requirement 2result in different amounts for Uncollectible Accounts Expense?What rationale underlies each method?
Related questions
Swathmore Clothing Corporation grants its customers 30 daysâcredit. The company uses the allowance method for its uncollectibleaccounts receivable. During the year, a monthly bad debt accrual ismade by multiplying 2% times the amount of credit sales for themonth. At the fiscal year-end of December 31, an aging of accountsreceivable schedule is prepared and the allowance for uncollectibleaccounts is adjusted accordingly.
| At the end of 2012, accounts receivablewere $606,000 and the allowance account had a credit balance of$70,000. Accounts receivable activity for 2013 was as follows:
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Swathmore Clothing Corporation grants its customers 30 daysâcredit. The company uses the allowance method for its uncollectibleaccounts receivable. During the year, a monthly bad debt accrual ismade by multiplying 3% times the amount of credit sales for themonth. At the fiscal year-end of December 31, an aging of accountsreceivable schedule is prepared and the allowance for uncollectibleaccounts is adjusted accordingly. |
At the end of 2012, accounts receivablewere $590,000 and the allowance account had a credit balance of$54,000. Accounts receivable activity for 2013 was as follows: |
| Beginningbalance | $ | 590,000 | |
| Credit sales | 2,700,000 | ||
| Collections | (2,563,000 | ) | |
| Write-offs | (47,000 | ) | |
| Ending balance | $ | 680,000 | |
| The companyâs controllerprepared the following aging summary of year-end accountsreceivable: |
| Summary | ||||||
| Age Group | Amount | Percent Uncollectible | ||||
| 0â60 days | $ | 410,000 | 5 | % | ||
| 61â90 days | 97,000 | 11 | ||||
| 91â120 days | 57,000 | 27 | ||||
| Over 120 days | 116,000 | 38 | ||||
| Total | $ | 680,000 | ||||
| Required: |
| 1. | Prepare a summary journal entry to record the monthly bad debtaccrual and the write-offs during the year. (If no entry isrequired for a particular event, select "No journal entry required"in the first account field.) |
| 2. | Prepare the necessary year-endadjusting entry for bad debt expense. (If no entry isrequired for an event, select "No journal entry required" in thefirst account field.) |
| 3.1 | What is total bad debt expensefor 2013? |
| 3.2 | Calculate the amount of accountsreceivable that would appear in the 2013 balance sheet? |
