Reference no: EM132944294
QUESTION - This question is about Accounts Receivable and the Allowance for Doubtful - Debts. All transactions related to a company's uncollectible accounts for the financial year ended 30 June 2020 are shown below (all amounts include GST unless otherwise noted). The Accounts Receivable account had a balance at 30 June 2020 of $115 630, and the beginning (1 July 2019) balance in the Allowance for Doubtful Debts account was $10,200.
Aug 9 The account of J. Bright had been written off as a bad debt in a previous period but he found that he could now pay the account. The amount of $1,045 was collected in full payment of the account.
Jan 31 Received 40% of the $880 balance owed by Carl Wolff and wrote off the remainder as uncollectible.
April 15 Wrote off as bad the accounts of Squelch Co. Ltd, $1760, and D. Flatman, $2310.
June 16 Received $704 from D. Jackson in full payment of his account, which had been written off earlier as uncollectible.
REQUIRED -
1. Using concepts from the Conceptual Framework explain why Accounts Receivable are shown in the balance sheet at their 'fair value' (net realisable value).
2. Prepare general journal entries for each of the above transactions.
3. Show all movements in the Allowance for Doubtful Debts General Ledger Account BEFORE the end of year adjusting entry.
4. Assume the business uses the Net Sales Method for determining the Allowance for doubtful debts. Estimated bad debts expense for the year are 2% of net credit sales. Net credit sales for the year totalled $421 000 (excluding GST).
(a) What is the adjusting entry for the Allowance for Doubtful Debts at 30 June?
(b) Determine the balance in the Allowance for Doubtful Debts account after the 30 June adjustment.
5. Assume the business uses the Ageing Method instead of the Net Sales Method referred to in Part 4 above. The estimate of uncollectible accounts (based on an ageing of accounts receivable at 30 June) was $12,050.
Determine the general journal entry to bring the allowance account to the required balance (after all the entries above).