Question

QUESTION 1 David Pty Ltd has accounts receivable of $68,300 at 31 March 2016. An analysis of the accounts shows the following amounts. Balance, 31 March Month of sale 2016 2015 March February December and January November and October $39,100 12,800 9,300 7,100 $68,300 $74,400 7,500 2,400 1,100 $85,400 Credit terms are 2/7, n/30. At 31 March 2016 there is a $1,690 credit balance in allowance for doubtful debts before adjustment. The entity uses the ageing of accounts receivable basis for estimating uncollectable accounts. David Pty Ltd's estimates of bad debts are as follows. Estimated Age of accounts percentage uncollectable Current 2% 1-30 days past due 5% 31-90 days past due 30% Over 90 days 50% Required a) Determine the total estimated uncollectables. b) Prepare the adjusting entry at 31 March 2016 to record bad debts expense. (Enter debit entries first, followed by credit entries. Please include Dr and Cr as appropriate. Narrations are not required.)

Answer 1

a) Total estimated uncollectables is = = ((39100*2%)+(12800*5%)+(9300*30%)+(7100*50%)) Total estimated uncollectables is = $ 7,762/. b) Unadjusted balance in allowance for doubtful debts is = $ 1,690/. Adjustment for allowance for doubtful accounts to be made is = (7762-1690) Adjustment for allowance for doubtful accounts to be made is = $ 6,072/. Debit $ Credit $ Journal entries :- Date Accounts Title & Explanation 31-Mar-16 Bad debt expense To Allowance for doubtful accounts (Entry for estimated bad debt expense) 6,072 6,072