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A trader maintains allowances for trade receivables to cover 2 percent of trade receivables outstanding at...

A trader maintains allowances for trade receivables to cover 2 percent of trade receivables outstanding at the year end. Information from her financial records include the following:

Total trade receivables outstanding at end of year - 380,000 pounds

Bad debts still to be written off for the year - 30,000 pounds

Allowances for trade receivables at beginning of year - 64,000 pounds

What is the total charge to the income statement for the year in respect of trade receivables (in pounds)?

A. 30,000

B. 42,000

C. 76,000

D. 36,000

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Answer #1

Answer

  • 2% of account receivables = 3800000 pounds x 2% = 76000 pounds
  • Unadjusted balance in Allowance account = 64000 pounds – 30000 pounds written off = 34000 pounds
  • Adjusted balance required in Allowance account = 76000 pounds
  • Total charge to Income Statement = 76000 – 34000
    = 42000 pounds.
  • Correct Answer = Option ‘B’ 42,000
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