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?

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