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Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $30,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $500,000, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 55,000. Required: 1. What was the balance in gross accounts receivable as of 12/31/2020? 2. What journal entry should Johnson record to recognize bad debt expense for 2021? 3. Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2021. Determine the amount of accounts receivable written off during 2021. 4. If Johnson instead used the direct write-off method, what would bad debt expense be for 2021?

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mltn1980

Answer:

  • What was the balance in gross accounts receivable as of 12/31/2020?

Accounts Receivable $ 585,000 31.12.2020

  • What journal entry should Johnson record to recognize bad debt expense for 2021?

Bad debt expense $ 105,000  

Allowance for Uncollectible Accounts  $ 105,000

  • Determine the amount of accounts receivable written off during 2021.  

Allowance for Uncollectible Accounts $ 85,000  

Accounts Receivable  $ 85,000

  • If Johnson instead used the direct write-off method, what would bad debt expense be for 2021?

Bad debt expense $ 85,000  

Accounts Receivable  $ 85,000

Explanation:

1. What was the balance in gross accounts receivable as of 12/31/2020?  

Accounts Receivable $ 500,000

Allowance for Uncollectible Accounts $ 30,000

Allowance for Uncollectible Accounts $ 55,000

Accounts Receivable $ 585,000

If you had a Accounts Receivable balance of $500,000 and you Uncollectible Accounts change from Credit $30,000 to debit $50,000  

it means that a journal entry was recorded as:  

Allowance for Uncollectible Accounts $ 85,000 - Debit

Accounts Receivable  $ 85,000  - Credit

So the the Gross Account before the journal entry was $585,000  

2. What journal entry should Johnson record to recognize bad debt expense for 2021?

The company has this balance accounts at the moment of the adjustment

Initial Balance  

Accounts Receivable $ 500,000  

Allowance for Uncollectible Accounts - Debit Balance  $ 55,000

The Allowance for uncollectible accounts is 10% .

It's necessary to make a journal entry to correct the allowance for uncollectible accounts.

Bad debt expense $ 105,000  

Allowance for Uncollectible Accounts  $ 105,000

The final balance is:

Final Balance  

Accounts Receivable $ 500,000  

Allowance for Uncollectible Accounts - Credit Balance  $ 50,000

Determine the amount of accounts receivable written off during 2021.

It's the difference in the balance of the Accounts Allowance for Uncollectible Accounts from debit $30,000 to credit  $55,000.

If Johnson instead used the direct write-off method, what would bad debt expense be for 2021?

In this case the journal entry to bad expenses would be $85,000, because it's the amount that the company written-off during 2021, that is the reason why Allowance for Uncollectible Accounts change from Credit to Debit.

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