Question

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:

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.

c. 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.

Answer 1

a. Calculation of bad debt expense

Amount	Uncollectible %	Expenses
15000	0.5	75
10000	2	200
3000	10	300
2000	60	1200
Total		1775

400 need to be added with the calculated new allowance account as it had a debit balance.

Bad debt expense = 1775 +400 = 2175

b. Journal entry to record bad debt expense

Date	Details	Dr. $	Cr.$
30-Jun	Bad debt expense	2175
	Allowance for doubtful debt		2175

c. journal entry to write off bad debt

Date	Details	Dr. $	Cr.$
31-May	Allowance for doubtful debts	3000
	Jap Inc.		3000

journal entry to record recovery of bad debt

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