1Tieppo Cycles Pty Ltd currently adopts the Direct Method to write-off a debt as uncollectable (bad debt). The company has decided to change its accounting policy to the Allowance Method. On 2 June 2020, Tieppo Cycles Pty Ltd deemed that Mr. Schofield could not pay a debt of $600 and the amount was written off as a bad debt. The journal entry to record the uncollectable amount was DR: Bad Debts $600 and CR: Accounts receivable Schofield $600. If the company now decides to adopt the Allowance Method with an opening balance in the Allowance for Doubtful Debts of $2,000 CR. The company now records the write-off of the bad debt under the Allowance Method and reverses the direct method write-off of the Schofield debt. What would be the impact on the financial reports if a change of accounting policy on 2 June 2020 was undertaken from the Direct Method to the Allowance Method? Group of answer choices

No impact on the current asset Accounts receivable, a decrease in the contra current asset Allowance for doubtful debts and a decrease in the expense account bad debts. No impact on the current asset Accounts receivable, a decrease in the contra current asset Allowance for doubtful debts and an increase in the expense account bad debts. Decrease in the current asset Accounts receivable and a decrease in the expense account bad debts

No impact on the current asset Accounts receivable, an increase in the contra current asset Allowance for doubtful debts and a decrease in the expense account bad debts.

2

Quill & Pens Stationery Pty Ltd decides to write off a debt of $450 from one customer. Quill & Pens Stationery Pty Ltd adopts the Allowance Method of writing off a bad debt. (Disregard GST) What would be the effect on the relevant accounts if the $450 write off was not recorded? Group of answer choices

Understate Accounts receivable by $450 and overstate Allowance for Doubtful Debts by $450

Overstate Accounts receivable by $450 and overstate Allowance for Doubtful Debts by $450

Understate Accounts receivable by $450 and overstate Bad Debts by $450

Overstate Accounts receivable by $450 and understate Allowance for Doubtful Debts by $450

3

Sorrento Interior Furnishings Pty Ltd has adopted the Allowance for Doubtful Debts Method. The Allowance for Doubtful Debts as at 1 July 2019 was $7,500 credit (CR). The write-off of bad debts for the 2019 2020 financial year was $8,000. The Allowance for Doubtful Debts as at 30 June 2020 was 7% of credit sales. Credit sales for the 2019 2020 financial year was $130,000 (Disregard GST) What is the adjusting entry to raise the Allowance for Doubtful Debts at 30 June 2020? Group of answer choices

DR: Bad Debts $9,600 CR: Allowance for Doubtful Debts $9,600 DR: Bad Debts $9,100 CR: Allowance for Doubtful Debts $9,100

DR: Accounts Receivable $8,000 & CR: Allowance for Doubtful Debts $8,000 DR: Bad debts $8,000 & CR: Allowance for Doubtful Debts $8,000