Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2016, accounts receivable totaled $685,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $44,000 at the beginning of 2016 and $27,000 in receivables were written off during the year as uncollectible.

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2016, accounts receivable totaled $685,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $44,000 at the beginning of 2016 and $27,000 in receivables were written off during the year as uncollectible. Also, $2,400 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 $2,400 for previously written off receivables, and the year-end adjusting entry for bad debt expense.


Explanation

1.

Allowance for uncollectible accounts:

Balance, beginning of year	$	44,000
Deduct: Receivables written off		(27,000	)
Add: Collection of receivable previously written off		2,400
Balance, before adjusting entry for 2016 bad debts		19,400
Required allowance: 15% × $685,000		(102,750	)
Bad debt expense	$	83,350

2.

Accounts receivable, net of $102,750 allowance for uncollectible accounts = $582,250

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