Mrs. Tara, the accountant of BB has reviewed the draft account for 2021 and noticed that the company was in financial distress at the beginning of the year. Therefore, the company used its account receivables as a means of obtaining cash to survive and go out of distress. The following is information related to selected activities for the month of January until March 2021.

15 Jan The clients High Hope. Bhd. forwarded a notice to BB asking for longer credit period. The sales amounting RM420,000 is for previous month sales. BB agreed to extend the credit period and convert the remaining balance of account receivable to 12%, 120-day Note Receivable.

1 Feb BB factored with recourse RM230,000 of account receivable for a cash proceed of RM220,000 to the Future Bank Berhad. Future Bank Berhad withheld 5% of account receivable as protection against sales return and allowance. The difference between factored account receivable and cash proceed is considered as a finance charge.

29 Feb Future Bank Berhad managed to collect RM215,000 of the factored account receivable, which include sales return and allowance of RM8,700. The remaining balance of account receivable is uncollectible. Settlement of factored accounts receivable was done on this date.

1 March BB assigned RM100,000 of its account receivable as collateral on a RM80,000, 12% loan from Al Rajhi Bank Berhad. A commission of 7% on the face amount of loan was charged.

30 March Collected RM85,000 of account receivable assigned and remitted it to Al Rajhi Bank Berhad.

Mrs. Tara retraced the recording of the above transactions and she finds out that the related transactions are properly recorded. Mrs. Tara also performed extensive review on the notes to account. After reviewed the notes to accounts for Trade and Other Receivables, Mrs. Tara noticed that the allowance for bad debts expenses for 2021 remained the same as previous years. It provides clues to possible error in recording. For the past few years, 3% of account receivables are estimated to be uncollectible and the company uses the percentage of receivables method to estimate the bad debt expense. The following is the notes to the accounts for trade and other receivables.

Trade and Other Receivables

2021

2020

RM

RM

Trade receivables

1,850,000

1,600,000

Less: allowance for bad debt expenses

48,000

48,000

1,802,000

1,552,000

Other receivables, deposits and prepayment

98,430

120,340

Total

1,900,430

1,672,340

You are required to:

Prepare the journal entries for January 2020 until March 2020s transactions for BB, assuming these transactions were recorded properly by the company.

Mrs. Tara in a view that the information stated in the notes to account for Trade and Other Receivables provide clues to possible error in recording. Give your opinion why Mrs. Tara came to that conclusion. Prepare the adjusting entries for 2021 bad debt expenses. Show the updated notes to account for Trade and Other Receivables.