Cityguard Security Services Pty Ltd is a provider of security services for the commercial and business sector. Commercial premises and buildings throughout Australia engage Cityguard Security Services for their security needs including security checkpoints at commercial sites, concierge services and mobile patrol. Cityguard Security Services also provide their clients with add-on services such as alarm systems, access control systems and CCTV systems. The COVID-19 pandemic has hit the business sector particularly hard, with lock downs forcing the closures of many commercial and business buildings across different states in Australia. For Cityguard Security Service, this has meant that clients have cut back requesting security services (which is a discretionary expense) as much as possible. Many clients are experiencing great financial difficulty and have delayed paying amounts owed to Cityguard Security Services. In the context of this case, please answer the following questions:

(1) In prior periods, Cityguard Security Services used the direct write off method to account for bad debts. Cityguard Security Services historically had a stable client base and management did not continue to service clients who did not pay invoices due. Briefly explain what the direct write off method of accounting for bad debts is and with reference to one qualitative characteristic why the direct write off method was deemed appropriate prior to the COVID-19 pandemic and why it is unlikely to be appropriate since the pandemic.

(2) Cityguard Security Services management have been actively pursuing clients who fail to pay invoices when they fall due. Based on the experience of Cityguard Security Services in this financial year which ends on June 30, 20% of clients (based on sales revenue) have not and cannot pay their invoices when they fall due. These clients typically close their businesses or have not returned to their business premise (especially with the overall reduction in business activity) and can never pay amounts due to Cityguard Security Services. Identify the method and approach that is appropriate to account for bad debts in this case, justifying why the method and approach you have identified is appropriate.

(3) The 30th June balance sheet of Cityguard Security Services showed Accounts Receivable of $850000 and a credit balance in Allowance for Doubtful Accounts of $53000. During the year, the following transactions occurred: service on account $1750000; service returns and allowances, $120000; collections from customers, $1450000; accounts written off, $55000; previously written off accounts of $10000 were collected. (a) Journalise the above transactions. (b) If Cityguard Security Services uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 5% of accounts receivable, what is the adjusting entry at 30th June? Hint for (b): Create the T-accounts for Accounts receivable and Allowance for Doubtful Debts based on your journals in (a) and use the final balances to calculate the adjustment required before creating the adjusting entry.