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