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Tutorial Solution Week 03

Tutorial Answers
Course

Accounting In Organisations (ACCY112)

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Academic year: 2020/2021
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ACCY112: Accounting In Organisations Spring 2020- School of Accounting, Economics and Finance Tutorial Solutions - Week 3 EQ12 ; EQ12; PQ12 ; PQ12.

Exercise 12.

Doubtful debts — net credit sales method

The following transactions relate to the business of Penrith Produce Ltd. Ignore GST.

Required (a) Record the transactions in general journal form. (b) What is the balance in the Allowance for Doubtful Debts accounts and the Bad Debts Recovered account? Where are these accounts shown on the financial statements? (LO3) (a)

June 30 Bad Debts Expense $3 300 Allowance for Doubtful Debts $3 300 (Estimated bad debts expense)

Oct 5 Allowance for Doubtful Debts 550 Accounts Receivable – M. McGrath 550 (Wrote off M. McGrath as uncollectable)

Nov 15 Accounts Receivable – M. McGrath 242 Bad Debts Recovered 242 (M. McGrath recovered debt in part)

Cash at Bank 242 Accounts Receivable – M. McGrath 242 (Collected part payment in cash)

(b)

Allowance for Doubtful Debts = Contra current asset — Balance Sheet balance $3300 – $550 = $2750 (shown as a deduction from accounts receivable)

Bad Debts Recovered $242 = Income — Income Statement

Exercise 12.

Doubtful debts — ageing method

On 30 June, the end of its financial year, Burnside Consulting completed an age analysis of its accounts receivable and determined that an allowance for doubtful debts of $12 320 was needed in order to report accounts receivable at their estimated collectable amount in the balance sheet. Ignore GST.

Required (a) Prepare the entry to record bad debts expense assuming that the Allowance for Doubtful Debts account currently has a $1940 credit balance. (b) Prepare the entry to record bad debts expense assuming that the Allowance for Doubtful Debts account currently has a $820 debit balance. (c) Prepare the entry to write off an account receivable from G. Smith for $781. (d) Assume that before the entry recorded in requirement C above, the net amount of accounts receivable was $99 000. What is the net amount receivable from accounts receivable after recording the write-off of Smith’s account? Explain. (LO3)

(a)

Bad Debts Expense $10 380 Allowance for Doubtful Debts ($12 320 – $1 940) $10 380 (Increase Allowance for Doubtful Debts to $12 320)

(b)

Bad Debts Expense $13 140 Allowance for Doubtful Debts $13 140 (Increase Allowance for Doubtful Debts from $820 debit to $12 320 credit)

(c)

Allowance for Doubtful Debts 781 Accounts Receivable – G. Smith 781 (Write off amount owing by G. Smith )

(a)

Accounts Receivable $1 195 000 Fees Income $1 195 000 Fees charged in June.

Fees Income 24 100 Accounts Receivable 24 100 Refund of fees in June.

Cash at Bank 1 400 000 Accounts Receivable 1 400 000 Collections on accounts receivable in June.

Allowance for Doubtful Debts 15 851 Accounts Receivable 15 851 Account receivable written off as uncollectable.

Bad Debts Expense 17 251 Allowance for Doubtful Debts 17 251 Adjustment to have a closing balance of $ 500 in Allowance for Doubtful Debts.

(b)

Balance Sheet as at 30 June (extract)

Accounts receivable *$604 604 Less : Allowance for doubtful debts 13 500

$591 104

* $849 555 + $1 195 000 – $24 100 – $1 400 000 – $15 851 = $604 604

(c)

June 29 Accounts Receivable – Kim Ltd $2 400 Bad Debts Recovered 2 400 Kim Ltd previously written off reinstated as account receivable.

Cash at Bank 2 400 Accounts Receivable 2 400 Kim Ltd pays account in full.

Problem 12.

Ageing of accounts receivable and adjustment of allowance

The accountant for Debbie’s Dance Ltd prepared an ageing analysis of accounts receivable balances at 30 June 2019 as set out below. The percentages of each age group are based on past experience and are shown next to the aged balances. Ignore GST.

The allowance method is used to account for bad debts. On 30 June 2019 the credit balance of the Allowance for Doubtful Debts account is $3150 before any adjustments.

Required (a) Prepare the general journal adjusting entry for estimated bad debts on 30 June 2019. (b) Give the entry to write off the account of S. Riley in August 2019, $1650. (LO3)

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Tutorial Solution Week 03

Course: Accounting In Organisations (ACCY112)

123 Documents
Students shared 123 documents in this course

University: University of Wollongong

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ACCY112: Accounting In Organisations
Spring 2020- School of Accounting, Economics and Finance
Tutorial Solutions - Week 3
EQ12.3; EQ12.4; PQ12.9; PQ12.14
Exercise 12.3
Doubtful debts — net credit sales method
The following transactions relate to the business of Penrith Produce Ltd. Ignore GST.
Required
(a) Record the transactions in general journal form.
(b) What is the balance in the Allowance for Doubtful Debts accounts and the Bad Debts
Recovered account? Where are these accounts shown on the financial statements?
(LO3)
(a)
June 30
Bad Debts Expense
$3 300
Allowance for Doubtful Debts
$3 300
(Estimated bad debts expense)
Oct 5
Allowance for Doubtful Debts
550
Accounts Receivable – M. McGrath
550
(Wrote off M. McGrath as uncollectable)
Nov 15
Accounts Receivable – M. McGrath
242
Bad Debts Recovered
242
(M. McGrath recovered debt in part)
Cash at Bank
242
Accounts Receivable – M. McGrath
242
(Collected part payment in cash)
(b)
Allowance for Doubtful Debts = Contra current asset — Balance Sheet balance $3300 –
$550 = $2750 (shown as a deduction from accounts receivable)
Bad Debts Recovered $242 = Income — Income Statement

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