Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2015, accounts receivable were $606,000 and the allowance account had a credit balance of $70,000. Accounts receivable activity for 2016 was as follows:

Beginning balance	$	606,000
Credit sales		2,780,000
Collections		(2,643,000)
Write-offs		(55,000)
Ending balance	$	688,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group		Amount	Percent Uncollectible
0–60 days	$	450,000	3	%
61–90 days		74,000	13
91–120 days		65,000	24
Over 120 days		99,000	39
Total	$	688,000

Required:

1.	Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation

1.

Bad debt expense (2% × $2,780,000) = $55,600

2.

Year-end required allowance for uncollectible accounts:

 

			Summary
Age Group		Amount		Percent Uncollectible			Estimated Allowance
0—60 days	$	450,000		3%		$	13,500
61—90 days		74,000		13%			9,620
91—120 days		65,000		24%			15,600
Over 120 days		99,000		39%			38,610
Totals	$	688,000				$	77,330

Allowance for uncollectible accounts:
Beginning balance	$	70,000
Add: Monthly bad debt accruals		55,600
Deduct: Write-offs		(55,000)
Balance before year-end adjustment		70,600
Required allowance (determined above)		77,330
Required year-end increase in allowance	$	6,730

3-1.

Bad debt expense for 2016:
Monthly accruals	$	55,600
Year-end adjustment		6,730
Total	$	62,330

3-2.

Accounts receivable, net of $77,330 allowance for uncollectible accounts = $610,670

Thank you!