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12.11 Doubtful debts – net credit sales and ageing methods ** LO3 Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for year) Credit sales returns and allowances (for year) Accounts receivable (balance 30 June 2019) Allowance for doubtful debts (credit balance 30 June 2019) $1070 000 90 000 326 500 1 500 In the past, the company's yearly bad debts expense had been estimated at 29% 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. Balance % estimated uncollectable Accounts not yet due Accounts overdue: 10-30 days $175 600 61 000 2 31-60 days 44 000 10 61-120 days 121 days and over 25 400 25 20 500 $ 326 500 40 Required a. Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. b. Determine the balance in the Allowance for Doubtful Debts account under both methods. C. Assume that the allowance account had a debit balance of $850 at 30 June 2019. Show the journal entries to record the allowance for doubtful debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. d. Using the journal entries from requirement (c), determine the balance in the allowance account under both methods. e. Explain, with reference to requirements (b) and (d), why the two different methods result in different balances.

12.11 Doubtful debts – net credit sales and ageing methods ** LO3 Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for year) Credit sales returns and allowances (for year) Accounts receivable (balance 30 June 2019) Allowance for doubtful debts (credit balance 30 June 2019) $1070 000 90 000 326 500 1 500 In the past, the company's yearly bad debts expense had been estimated at 29% 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. Balance % estimated uncollectable Accounts not yet due Accounts overdue: 10-30 days $175 600 61 000 2 31-60 days 44 000 10 61-120 days 121 days and over 25 400 25 20 500 $ 326 500 40 Required a. Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. b. Determine the balance in the Allowance for Doubtful Debts account under both methods. C. Assume that the allowance account had a debit balance of $850 at 30 June 2019. Show the journal entries to record the allowance for doubtful debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. d. Using the journal entries from requirement (c), determine the balance in the allowance account under both methods. e. Explain, with reference to requirements (b) and (d), why the two different methods result in different balances.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer b,d only

12.11 Doubtful debts – net credit sales and ageing methods ** LO3 Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for year) $1070 000 Credit sales returns and allowances (for year) 90 000 Accounts receivable (balance 30 June 2019) 326 500 Allowance for doubtful debts (credit balance 30 June 2019) 1 500 In the past, the company's yearly bad debts expense had been estimated at 29% 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. Balance % estimated uncollectable Accounts not yet due $ 175 600 Accounts overdue: 10-30 days 61 000 2 31-60 days 44 000 10 61-120 days 25 400 25 121 days and over 20 500 $ 326 500 40 Required a. Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. b. Determine the balance in the Allowance for Doubtful Debts account under both methods. C. Assume that the allowance account had a debit balance of $850 at 30 June 2019. Show the journal entries to record the allowance for doubtful debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. d. Using the journal entries from requirement (c), determine the balance in the allowance account under both methods. e. Explain, with reference to requirements (b) and (d), why the two different methods result in different balances.
Transcribed Image Text:12.11 Doubtful debts – net credit sales and ageing methods ** LO3 Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for year) $1070 000 Credit sales returns and allowances (for year) 90 000 Accounts receivable (balance 30 June 2019) 326 500 Allowance for doubtful debts (credit balance 30 June 2019) 1 500 In the past, the company's yearly bad debts expense had been estimated at 29% 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. Balance % estimated uncollectable Accounts not yet due $ 175 600 Accounts overdue: 10-30 days 61 000 2 31-60 days 44 000 10 61-120 days 25 400 25 121 days and over 20 500 $ 326 500 40 Required a. Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. b. Determine the balance in the Allowance for Doubtful Debts account under both methods. C. Assume that the allowance account had a debit balance of $850 at 30 June 2019. Show the journal entries to record the allowance for doubtful debts at 30 June 2019 under: i. the net credit sales method ii. the ageing of accounts receivable method. d. Using the journal entries from requirement (c), determine the balance in the allowance account under both methods. e. Explain, with reference to requirements (b) and (d), why the two different methods result in different balances.
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