Question 2 (10 marks)

A credit sale is integral to the AFDD (Limited) AFDD. The accounting records of the company reveal the following data. [Ignore GST].

The details of the accounting transactions	$
Credit sales during the year	856 000
Credit sales returns and allowances during the year	72 000
Accounts receivable balance as of 30 June 20X9	261 200
Credit purchases during the year	526 000
Credit purchases returns during the year	62 000

The opening balance of the allowance for doubtful debts is $1 200 (Credit Balance). In the past, the companys yearly bad debt expense had been estimated at 2% of net credit sales revenue. It was decided to compare the current method with an ageing of the accounts receivable method. The following analysis was obtained with respect to the accounts receivable.

Nature of A/R	Age	Balance	% of estimated uncollectable
Accounts not yet due	N/A	$140 480	0.5
Accounts overdue by	10-30 days	$48 800	02
Accounts overdue by	31-60 days	$35 200	10
Accounts overdue by	61-120 days	$20 320	25
Accounts overdue by	121 days and over	$16 400	40
Total		$261 200

Required:

Prepare journal entries to adjust the allowance for doubtful debts on 30 June 20X9 using the net credit sales method [3 Marks]

ANSWER a):

Prepare journal entries to adjust the allowance for doubtful debts on 30 June 20X9 using the ageing of accounts receivable method [3 Marks]

ANSWER b):

Determine the balance in the allowance for doubtful debts account under the net credit sales method [2 Marks]

ANSWER c):

Determine the balance in the allowance for doubtful debts account under the ageing of accounts receivable method [2 Marks]

ANSWER d):