Question
Hi-Fi sells electronic products. All sales are conducted on a credit basis and no cash discounts are granted. Ignore GST. The financial year ends on
Hi-Fi sells electronic products. All sales are conducted on a credit basis and no cash discounts
are granted. Ignore GST. The financial year ends on 30 June. The following information was
extracted from the accounting records on 30 June 2020:
Sales $ 437,000
Sales returns and allowances $ 7,000
Cash collected $ 280,000
Debts to be written off $ 3,600
Assume that Hi-Fi uses the allowance method to account for bad debts. Management has
estimated bad debts expense for each year at 1% of net credit sales.
Required:
1) What methods are used to estimate bad debts and doubtful debts? Explain which
method you would recommend for Hi-Fi Ltd
2) Determine the amount of doubtful debts adjustment and show the journal entry to record
doubtful debts adjustment on 30 June
3) Show the journal entry to write off bad debts on 30 June
4) Show the journal entry to record cash collected on 30 June
5) Determine the amount of bad debts expense reported in the income statement for the
period ended 30 June
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