Question

Problem 2:

Ignore GST for this problem. As at 30 June 2016, the end of its financial year, Oscar Ltd reported the following information on its balance sheet:

Accounts receivable Less: Allowance for doubtful accounts

$1,020,000 60,000

During the next financial year, the business had the following totals related to receivables. You may assume that all events were correctly journalised and posted.

1. 2. 3. 4. 5. 6.

Sales on account Sales discounts Sales returns and allowances Cash collected on accounts receivable Write-offs of accounts receivable Recovery of receivables previously written off as uncollectable

$2,670,000 10,000 30,000 2,300,000 65,000 20,000

Required:

(a)   Enter the 1 July 2016 balances in Accounts Receivable and Allowance for Doubtful Accounts in “T” accounts. Re-create the postings for the year to the two “T” accounts, cross referencing with the opposite account name, e.g., for a cash collection from a customer on account, the debit posting to the Cash account would have a cross reference to Accounts Receivable on the left of the dollar figure.

(b)   Prepare the adjusting journal entry required on 30 June 2017, assuming that it is estimated that the recoverable amount of accounts receivable on that date is $1,250,000.

     (c)    Use a residual analysis to justify the AJE you prepared in (b) above.

Answer 1

Part a)

The T-Accounts are prepared as below:

Accounts Receivable
Bal.	1,020,000	2)	10,000
1)	2,670,000	3)	30,000
6)	20,000	4)	2,300,000
		5)	65,000
		6)	20,000
Bal.	$1,285,000

_____

Allowance for Doubtful Debts
5)	65,000	Bal.	60,000
		6)	20,000
		Bal.	$15,000

_____

Part b)

The adjusting entry is prepared as below:

Date	General Journal	Debit	Credit
30-Jun-17	Bad Debt Expense	$20,000
	Allowance for Doubtful Debts		$20,000

_____

Part c)

The residual analysis is given as below:

Ending Balance in Accounts Receivable (from T-Account)	1,285,000
Estimated Value of Recoverable Accounts Receivable	1,250,000
Value of Estimated Bad Debts	35,000
Ending Balance in Allowance for Doubtful Debts (Credit)	15,000
Adjustment Needed	$20,000