Sensational Aqua Sports Corp. (SAS)

Sensational Aqua Sports Corp. (SAS) is a publicly reportable enterprise with a December 31 year end. Select details regarding SAS’s accounts receivables (ARs) and allowance for doubtful accounts (AFDA) follow:

Closing balance AFDA 12/31/20X3

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$46,750

Net sales 20X4

$12,235,000

Percentage of net sales made on credit terms

90%

Net credit sales in December 20X4

$1,310,000

Monthly estimate of bad debt expense

1% of net credit sales

Bad debts written off in 20X4 during the year

$112,000

20X4 collection of ARs written off in 20X3

$1,895

Summary aged ARs at 12/31/20X4

Specifically identified as being uncollectable

% allowance required

1-30 days

$ 985,900

$ 0

1%

31-60 days

352,500

0

5%

61-90 days

42,400

16,700

10%

>90 days

12,980

7,980

25%

$ 1,393,780

SAS processes a journal entry each month end (including December) to provide for its estimated bad debt expense for the month based on credit sales. At year end, as part of its adjusting entry process, it then uses the aging method to determine the required balance for the AFDA account.

Required:

Prepare journal entries to record the following:

a) Recovery of the AR written off in 20X3.

b) Provision for the estimated bad debt expense in December 20X4 based on credit sales.

c) Year-end adjusting entries to provide for the writeoff of specifically identified accounts and to bring the balance of the AFDA account to the required balance as at December 31, 20X4.

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