Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2012 balance sheet disclosed the following:
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| Current assets: |
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| Receivables, net of allowance for uncollectible accounts of $38,000 |
$ |
472,000 |
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During 2013, credit sales were $1,790,000, cash collections from customers $1,870,000, and $43,000 in accounts receivable were written off. In addition, $3,800 was collected from a customer whose account was written off in 2012. An aging of accounts receivable at December 31, 2013, reveals the following:
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Percentage of Year-End |
Percent |
| Age Group |
Receivables in Group |
Uncollectible |
| 0-60 days |
65 |
% |
4 |
% |
| 61-90 days |
15 |
|
10 |
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| 91-120 days |
15 |
|
30 |
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| Over 120 days |
5 |
|
50 |
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| 1. |
Prepare summary journal entries to account for the 2013 write-offs and the collection of the receivable previously written off. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)
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| 2. |
Prepare the year-end adjusting entry for bad debts according to each of the following situations:
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| a. |
Bad debt expense is estimated to be 3% of credit sales for the year.
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| b. |
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
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| c. |
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
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3. For the above transactions, what would be the net amount of accounts receivable reported in the 2013 balance sheet?
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| a. |
Bad debt expense is estimated to be 3% of credit sales for the year.
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| b. |
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
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| c. |
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
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