Question

Information related to Rashford PTY LTD for 2016 is.

Total credit sales		$1,640,000
Accounts receivable as at 30 June		620,000
Doubtful debts written off		26,000

1. What amount of doubtful debts expense will Rashford PTY LTD report if it uses the direct write-off method of accounting for doubtful debts?

2. Assume that Rashford PTY LTD decides to estimate its doubtful debts expense to be 2% of credit sales. What amount of doubtful debts expense will Rashford record if Allowance for doubtful debts has a credit balance of $3,000?

3.  Assume that Rashford decides to estimate its doubtful debts expense based on 5% of accounts receivable. What amount of doubtful debts expense will Rashford PTY LTD record if Allowance for doubtful debts has a credit balance of $4,000

4. Referring back to the facts in question 3, except that there is a $2,000 debit balance in Allowance for doubtful debts. What amount of doubtful debts expense will Rashford record?

Answer 1

Given Information

Total credit sales= 1640000 $

Accounts receivables= 620000 $

Doubtful Debts Written Off= 26000 $

1. if it uses the direct written off method total amount of baddebts will writtenoff

in the given case amount of bad debts = 26000 $

total amounts will be reported as a expence in the reports

2.Computation of Amount of doubtful Debts Expences

% Of Doubtful Expences = 2% on TOtal Credit Sales

a)Amount of Doubtful Debt Expences =1640000*2%

=32800 $

b)Credi Balance of Allowances for doubt ful debts= 3000 $

Net amount of doubt ful debts=(a-b)=32800-3000=29800 $

3..Computation of Amount of doubtful Debts Expences

% Of Doubtful Expences = 5% on accounts receivables

a)Amount of Doubtful Debt Expences =620000*2%

=31000 $

b)Credi Balance of Allowances for doubt ful debts= 4000 $

Net amount of doubt ful debts=(a-b)=31000-4000=27000 $

4.Computation of Amount of doubtful Debts Expences

% Of Doubtful Expences = 5% on accounts receivables

a)Amount of Doubtful Debt Expences =620000*2%

=31000 $

b)debit Balance of Allowances for doubt ful debts= 2000 $

Net amount of doubt ful debts=(a+b)=31000+2000=33000 $