A. J & B Company uses the percentage of sales approach to estimate its uncollectible accounts....

A. J & B Company uses the percentage of sales approach to estimate its uncollectible accounts. The company’s annual sales for its first financial year of operations ending July 31, 2020 was $500,000, cash sales contributed to 2% of the overall sales and the accounts receivable balance at year end was $75,000. Based on industry expectations, it estimated that 3% of its credit sales would be uncollectible.

Required: Show all workings

a. Calculate the bad debt expense at July 31, 2020.

b. Calculate the net receivable balance that would be reported in the Statement of Financial Position as at July 31, 2020. (1 mark)

B. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000at year end and the company estimates the uncollectible percentages as follows:

Current (1 - 30 days) $15,000 0.5%

31 - 60 days $10,000 2.0%

61 - 90 days $3,000 10.0%

Over 90 days $2000 60.0%

Required: Show all workings

a. Calculate the bad debt expense at June 30, 2020.

b. Prepare the necessary journal entry to record the bad debt expense for the year.

B. During the financial year ending May 31, 2020 the Board of Directors of Chung Sa Corporation authorised the write off of a $3,000 two-year debt belonging to a previous customer Jap Inc. On July 2, 2020 Chung Sa Corporation received an electronic funds transfer from Jap Inc. in the amount of $3,000.

Required:

Prepare all necessary journal entries to record this transaction.

Solutions

Expert Solution

A.
a. Bad Debt Expense = $500000*98%*3% = $14700

Account Titles	Debit	Credit
Bad Debt Expense	$ 14,700
Allowance for Doubtful Accounts		$ 14,700

b. Net Receivable = $75000 - 14700 = $60300

	Receivable	Uncollectible Percent	Allowance
1-30 days	$ 15,000	0.5%	$ 75
31-60 days	$ 10,000	2.0%	$ 200
61-90 days	$ 3,000	10.0%	$ 300
More than 90 days	$ 2,000	60.0%	$ 1,200
Total	$ 30,000		$ 1,775

Bad Debt Expense = $1775+400 = $2175

Account Titles	Debit	Credit
Bad Debt Expense	$ 2,175
Allowance for Doubtful Accounts		$ 2,175

Date	Account Titles	Debit	Credit
May. 31	Allowance for Doubtful Accounts	$ 3,000
	Accounts Receivable		$ 3,000

Jul. 2	Accounts Receivable	$ 3,000
	Allowance for Doubtful Accounts		$ 3,000

	Cash	$ 3,000
	Accounts Receivable		$ 3,000

ekkarill92 answered 1 year ago

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