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Question 2(25 marks) All transactions below relate to GG Construction Lid's uncollectable accounts for the financial year ended 30 June 2020. Ignore GST. 28 July
Question 2(25 marks) All transactions below relate to GG Construction Lid's uncollectable accounts for the financial year ended 30 June 2020. Ignore GST. 28 July 2019: Wrote off the $572 account of Mr Fas uncollectable. 29 October 2019: Re-established the account of Mr K and recorded the collection of $1650 in full payment of his account, which had been written off previously. 21 January 2020: Received 40% of the $880 balance owed by Mr B and wrote off the remainder as uncollectable. 26 February 2020: Wrote off as bad the accounts of D & Co. Ltd, $2530, and Mr H $3520. 20 March 2020: Received 25% of the $1584 owed by J Plumbers and wrote off the remainder as a bad debt. 26 April 2020: Received $1067 from Mr G in full payment of his account, which had been written off earlier as uncollectable. 30 June 2020: Estimated bad debts expense for the year to be 1.5% of net credit sales of $631 000 The Accounts Receivable account had a balance at 30 June 2019 of $189 200, and the beginning (1 July 2019) balance in the Allowance for Doubtful Debts account was $9300. Required (a) Prepare journal entries for each of the transactions. (18 marks) (b) Assume that instead of basing the allowance for doubtful debts on net credit sales, the estimate of uncollectable accounts is based on an ageing of accounts receivable and that $11 630 of the accounts receivable as at 30 June was estimated to be uncollectable. Required: i. calculate the amount required to adjust the allowance account (show all workings). (3 marks) ii. the general journal entry to bring the allowance account to the desired balance. (2marks) (c) Explain why the account 'Allowance for doubtful debts' is used by a business? (2 marks)
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