Question 4 - Accounting for bad debts 120 marks) 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 Sales returns and allowances Cash collected Debts to be written off $ 549,000 $ 9,000 $ 470,000 $ 2,800 Required: Assume that Hi-Fi uses the allowance method to account for bad debts. The Allowance for Doubtful Debt has a credit balance of $1,300 on 1 July 2019. Management has estimated bad debts expense for each year at 1% of net credit sales. 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 provide the journal entry to record doubtful debts adjustment on 30 June. 3) Provide the journal entry to write off bad debts on 30 June 4) Provide the journal entry to record cash collected on 30 June 5) Show the disclosure of accounts receivable in the balance sheet on 30 June 2020