Establish the allowance for doubtful debts account

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Reference no: EM13504725

Mira Maz loves decorating and set up her own business a few years ago; Mira's Decorating Touches. The business is registered for GST, and has a 30 September year-end date.

The business is doing very well lately and Mira no longer has time to manage the books. She has approached you as her friend, and chartered accountant, to help her prepare her financial statements. Mira has provided you with her adjusted ledger balance as at 30 September 2012, as follows:

 

Account

Adjusted

Accounts payable

$36 036

Accounts receivable

102 528

Accumulated depreciation - delivery equipment

37 440

Accumulated depreciation - furniture and fixtures

21 216

Advertising expense

35 880

Cash at bank

35 688

Cost of sales

549 744

Delivery equipment

62 400

Depreciation expense - delivery equipment

12 480

Depreciation expense - furniture and fixtures

5 304

Discount allowed

9 048

Discount received

11 232

Electricity expense

13 344

Freight inwards

12 480

Freight outwards

24 336

Furniture and fixtures

53 040

GST Collections

94 817

GST Outlays

67 205

Insurance expense

3 744

Inventory

187 200

Loan payable

156 000

Mira Maz, Capital

162 552

Mira Maz, Drawings

37 440

Office Supplies expense

2 496

Office Supplies on hand

1 872

Prepaid insurance

2 808

Rent expense

38 064

Salaries expense

140 784

Salaries payable

4 680

Sales revenue

961 400

Sales returns and allowances

13 232

 

Required:

1)      Mira is keen to see the balance of her capital account, and asks you to prepare the narrative Balance Sheet as at 30 September 2012.

2)      When you review the Balance Sheet, you notice Mira has not accounted for any doubtful debts. You advise her to provide you with an ageing analysis of her debtors. She provides you with the following analysis, but has not completed the last column:

 

Accounts Receivable Balance

% estimated uncollectable

Estimated bad debts

Accounts not yet due

$38 600

5

 

Accounts overdue:     10 - 30 days

12 378

10

 

31 - 60 days

10 150

20

 

61 - 120 days

6 400

35

 

121 days and over

35 000

85

 

 

$102 528

 

 

2a) Complete the last column, in the table above, showing all calculations below and round to the two decimal places. 

2b) Prepare the journal entry to establish the Allowance for doubtful debts account, in accordance with your calculations in the last column from the table above. Narrationsare not required. 

 

Date

Account

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2c)  On inspection of correspondence with debtors, it was determined that amounts due from customers totaling $33 000 must be written-off as uncollectable. Record the journal entry to reflect this. Narrations are not required. 

 

Date

Account

Debit

Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2d) The following day, Mira rings you to tell you that she received a cheque for $18 700, as payment in full for one of the accounts that had been written off as uncollectable. Record the journal entries to record the transaction. Narrations are not required.

Reference no: EM13504725

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