Reference no: EM133118600
Question - The balances extracted from the Statement of Financial Position of Bahtera Klasik Bhd as of 31 December 2020 are as follows:
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RM
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Accounts receivable
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1,200,000
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Allowance for doubtful debts
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(10,000)
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|
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1,190,000
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The following transactions are related to the purchases and sales for Bahtera Klasik Bhd for the month of January 2021. The company records the sale and purchase transactions using gross method and periodic inventory system.
1 Jan Assigned RM48,500 of accounts receivable to Amanah Bank Bhd, as security for a loan of RM40,000. A commission (finance charge) of 6% on the face amount of the loan was charged, and the note bears interest of 9% per year.
2 Jan Received RM45,000 from customers on account.
3 Jan Sold goods to Putra Bhd amounted to RM95,500 on credit with term 2/10, n/30.
5 Jan Granted Putra Bhd RM1,000 credit for goods returned.
12 Jan Putra Bhd paid half of the gross sales amount on 3 January's transaction.
15 Jan Lukman Sdn Bhd, whose account has been written off in early 2019 paid RM10,000 for the total amount owed.
31 Jan Collected RM150,000 cash sales for the month of January 2021.
31 Jan Collected RM48,500 of accounts receivable assigned less discount of RM1,500 and remitted it to Amanah Bank Bhd, along with one month's interest.
31 Jan Bahtera Klasik Bhd issued a 90-day, 15% RM55,000 note receivable.
Required -
(a) Prepare the journal entries for the above transactions in the book of Bahtera Klasik Bhd for the month of January 2021.
(b) Discuss how bad debts are accounted for under the direct write-off method.
(c) Explain ONE (1) advantage of the allowance method over the direct write-off method to account for bad debts.