Question

QUESTION 5 (14 marks) Super Star Limited uses the allowance method to estimate uncollectible accounts receivable. The company produced the following aging of the accounts receivable at December 31, 2018. Number of Days Outstanding 31-60 61-90 91-120 Total 0-30 Over 120 $193,000 $70,000 1% $46,000 3% $39,000 5% $23,000 8% $15.000 10% Accounts receivable balance Estimated Uncollectible % Estimated uncollectible amount $ ?? Required: (Explanations for each journal entry are NOT required.) a. Calculate the total estimated uncollectible amount based on the above information. (2 marks) b. The Allowance for Impairment before adjustment at December 31, 2018 showed a debit balance of $3,000. Based on an aging schedule of accounts receivable prepared in (a), prepare the year-end adjusting entry required to record the impairment loss of receivable. Assume the statement of financial position approach is used. (2 marks) c. Assume that on January 10, 2019, $5,000 was determined to be specifically uncollectible. Prepare the journal entry required on January 10, 2019 to write off this account. (2 marks) d. On August 9, 2019, the company collected $5,000 subsequently on a specific account that had previously been written off in (c). Prepare the journal entries necessary to restore the account and record the cash collection. (4 marks) e. Comment on how your answers to (a) to (d) would change if Super Star Limited used 2% of its net credit sales, rather than aging the accounts receivable, to estimate its impairment loss of receivable. Assume that the net credit sales for the year ended December 31, 2018 amounted to $1,200,000. (4 marks)

Answer 1

Accounts Recenade ☺ Total Estimated un edleck ble amount Number of Day's Outstanding Total 0-3091-60 61-90 91-120 Over 120 balance $193000 $70,00 $16000 $3,000 323,000 $15,000 Estimated Uncoleckibe% % 3% 5% 8% 10% Estimated uncolleable Amount $7390 $700 91380 $1,950 $1,840 $1,500 al Cshemaled Uncalechblo Amount $7,390 Allowance for Impairment Opening balonce $3000 Impairment loss Ol Yeceivable closing balonce $7,3701 $76,370 $19,370 $10,370 Journal Entry Credit Date 2018 December 31 $10,370 Particulars Debit Impatoment Loss of Receivablesal $10,370 To allowance for Importment CTO record Imperament loss of peevable) Allowance for Importment $5,000 TO Accounts Receivable ak (to record the white off of accounts Recolvable) 2019 January 10 $ 5000 $ 5000 August 9 Accounts Receivable ole To Allowance for Impalment (To record reversal of willen of) $ 5000 $5,000 August 9 $5,000 Cash Ak 70 Account Receivable To record collection of cash from) Accounts Receivable

© If company uses. 2% of net credit sales method change in answer to @ » Impairment Loss -> 2% of $1, 200,000 => $24,000 opening balance of Allowance for Impairment - 93000 Allowance for Imporoment 70 opening balance $3,000 By Impartment loss of neceivable $24,000 70 closing balance $21,000 $ 24,000/ $24,000 so, To head of Impairment loss Account » $ 21,000) > Increase of $13,630 $ 21,000 - 7370) in answer 6 Imporment loss $24,000 An Increase of (24.000 – 10,370) = $13,630 in answer © No change. ut closing balance of mowance for Impairment will change. in answer No change