On December 31, 2019, Rainbow Appliances has $275,000 in accounts receivable and an allowance account with a debit balance of $320. Current period net credit sales were $780,000, and cash sales were $68,000.
a)Rainbow Appliances performs an aging schedule, and the results are summarized below, along with the appropriate percentages that Rainbow applies to the categories shown. $$\begin{array}{l}
\begin{array} { l c c }
&&\text { Percentage }\
\text { Days Outstanding } & \text { Amount } & \text { Uncollectible } \
\text { Not yet due } & \$ 150,000 & 1 \% \
31 - 60 \text { days past due } & 50,000 & 5 \% \
61 - 90 \text { days past due } & 40,000 & 10 \% \
91 - 120 \text { days past due } & 25,000 & 25 \% \
\text { Over } 120 \text { days past due } & 10,000 & 50 \%
\end{array}
\end{array}$$ Assuming Rainbow uses the aging approach of accounting for uncollectible accounts, prepare the adjusting entry required at the end of the accounting period.
b)Assume now Rainbow uses the percent-of-sales method of accounting for uncollectible accounts. If historical data indicate that approximately 3% of net credit sales are uncollectible, what is the amount of bad-debt expense and what is the balance in the allowance for doubtful accounts after adjustment?

Question

On December 31, 2019, Rainbow Appliances has $275,000 in accounts receivable and an allowance account with a debit balance of $320. Current period net credit sales were $780,000, and cash sales were $68,000.
a)Rainbow Appliances performs an aging schedule, and the results are summarized below, along with the appropriate percentages that Rainbow applies to the categories shown. $$\begin{array}{l}
\begin{array} { l c c } 
&&\text { Percentage }\
\text { Days Outstanding } & \text { Amount } & \text { Uncollectible } \
\text { Not yet due } & \$ 150,000 & 1 \% \
31 - 60 \text { days past due } & 50,000 & 5 \% \
61 - 90 \text { days past due } & 40,000 & 10 \% \
91 - 120 \text { days past due } & 25,000 & 25 \% \
\text { Over } 120 \text { days past due } & 10,000 & 50 \%
\end{array}
\end{array}$$ Assuming Rainbow uses the aging approach of accounting for uncollectible accounts, prepare the adjusting entry required at the end of the accounting period.
b)Assume now Rainbow uses the percent-of-sales method of accounting for uncollectible accounts. If historical data indicate that approximately 3% of net credit sales are uncollectible, what is the amount of bad-debt expense and what is the balance in the allowance for doubtful accounts after adjustment?

Quizplus · Accepted Answer

The Answer of On December 31, 2019, Rainbow Appliances has $275,000 in accounts receivable and an allowance account with a debit balance of $320. Current period net credit sales were $780,000, and cash sales were $68,000.
a)Rainbow Appliances performs an aging schedule, and the results are summarized below, along with the appropriate percentages that Rainbow applies to the categories shown. $$\begin{array}{l}
\begin{array} { l c c } 
&&\text { Percentage }\
\text { Days Outstanding } & \text { Amount } & \text { Uncollectible } \
\text { Not yet due } & \$ 150,000 & 1 \% \
31 - 60 \text { days past due } & 50,000 & 5 \% \
61 - 90 \text { days past due } & 40,000 & 10 \% \
91 - 120 \text { days past due } & 25,000 & 25 \% \
\text { Over } 120 \text { days past due } & 10,000 & 50 \%
\end{array}
\end{array}$$ Assuming Rainbow uses the aging approach of accounting for uncollectible accounts, prepare the adjusting entry required at the end of the accounting period.
b)Assume now Rainbow uses the percent-of-sales method of accounting for uncollectible accounts. If historical data indicate that approximately 3% of net credit sales are uncollectible, what is the amount of bad-debt expense and what is the balance in the allowance for doubtful accounts after adjustment?

On December 31, 2019, Rainbow Appliances Has $275,000 in Accounts