Question

QUESTION 1 (22 MARKS: 50 MINUTES) The following selected transactions relates to Rose Bhd for the year ended 31 December 2018: The beginning balance of accounts receivable and allowance for doubtful debts were RM3,500,000 and RM35,000 respectively Received 40% cash of RM30,000 owed by GB Enterprise, a bankrupt business and wrote off the reminder of the debts. Wrote off RM7,800 owed by Remy, which was bankrupt. Reinstated TJ Sdn Bhd's account, which had been written-off in the preceding year as collectible. Received cash RM18,500. Sold on account, RM2,560,700 Sales returns and allowances, RM340,200. Collections of accounts receivable, RM2,360,500. Estimated 1% of accounts receivable to be uncollectible debts. 1 Jan 5 May 10 July 20 Oct Jan-Dec Jan-Dec Jan-Dec 31 Dec Required: a) Prepare journal entries for Rose Bhd's transactions in 2018. (8 marks) Determine the ending balance of accounts receivable and allowance for doubtful debts. b) (7 marks) c) Prepare adjusting entry at 31 December 2018. (2 marks) d) Determine the net realizable value of accounts receivable as at 31 December 2018. (1.5 marks) e) Assuming the estimated uncollectible debts is based on 1% of credit sales for 2018, determine the following: i) Bad debt expense ii) Ending balance of allowance for doubtful debts. iii) Expected net realizable value of accounts receivable as at 31 December 2018. (3.5 marks)

Answer 1

a.)

JOURNAL ENTRIES

1

Date	Particulars	Debit	Credit
5 May	Bad Debt a/c	45,000
	Cash a/c	30,000
	Account Receivables		75,000

(being entry for GB enterprises recorded)

2

Date	Particulars	Debit	Credit
10 July	Bad Debt a/c	7,800
	Account Receivables a/c		7,800

(being entry for Remy recorded)

3

Date	Particulars	Debit	Credit
20 Oct	Cash a/c	18,500
	Bad Debt Recovered a/c		18,500

(being bad debt recovered recorded)

b.)

DEBIT Account Receivables a/c CREDIT

Particulars	Debit	Particulars	Credit
opening balance	3,500,000	Bad Debt(GB Enterprises)	45,000
Credit sales	2,560,700	Bad Debt(Remy)	7,800
		Cash(GB Enterprises)	30,000
		Sales Return	340,200
		Cash(collection during the year)	2,360,500
		Closing balance(balancing figure)	3,277,200

so closing balance of account receivables is 3,277,200

and closing balance of allowance for doubtful debts = 32,772

and profit of 2,228(35,000 - 32,772) will be transfered to profit and loss a/c.

if assuming 1% of credit sale...................

estimated uncollectible debt = 1% of credit sale

= 1% * 2,560700

= 25,607

bad debt expense will increase by 25,607 that is 78,407(45,000+7,800+25,607)

account receivables net realizable value will decrease by 25,607.