Question

In: Accounting

ABC Ltd has accounts receivable of $99 600 at 30 April,2019. An analysis of the...

ABC Ltd has accounts receivable of $99 600 at 30 April, 2019. An analysis of the accounts shows these amounts as follows:

Month of sale


Balance of Accounts Receivable

April, 2019


$50 000

March, 2019


43 000

February, 2019


1 200

January, 2019


5 100

December and November, 2018

300



99 600

Credit terms are 2/7, n/30. At 30 April, 2019, there is a $2000 credit balance in Allowance for Doubtful Debts before adjustment. The entity uses the ageing of accounts receivable basis for estimating uncollectable accounts. Estimates of bad debts are as follows:

Age of accounts


Estimated percentage uncollectable

Current



2%

1-30 days past due


5%

31-90 days past due


40%

over 90 days


50%





Required:

a)     Determine the total estimated uncollectable (1 mark)

b)     Prepare the adjusting entry at 30 April, 2019 to record bad debts expense (1 mark)

c)     In May, 2019, a cheque for $1500 is received from the customer whose account was written off as uncollectable in February. Prepare the journal entry. (2 marks)

(Both account names and figures should be correct in order to award marks.

Type your response directly into the text box below. Alternatively, you may draft your response in Excel or Word and upload as an attachment into the Files section underneath.)

Solutions

Expert Solution

a)

Receivables % Uncollectible Uncollectible
Not due $          50,000 2% $           1,000
1-30 days past due $          43,000 5% $           2,150
31-90 days past due $            6,300 40% $           2,520
Over 90 days past due $               300 50% $               150
Total $         99,600 $           5,820


Total Estimated Uncollectible = $5820

b)

Account Titles Debit Credit
Bad Debt Expense $            3,820
      Allowance for Doubtful Accounts $            3,820

c)

Date Account Titles Debit Credit
May, 2019 Accounts Receivable $            1,500
        Allowance for Doubtful Debts $            1,500
Cash $            1,500
       Accounts Receivable $            1,500

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