The 31st December 2009 trial balance of Anika Co. reported the following information.
Dr. Cr. Allowance for Bad Debts........................... $2,300
During the year 2010 the following selected transactions are available:
5 January 2010 Anika wrote off the balance due from Michael as a bad debt amounted to $900. 19 April Peter was unable to pay his account balance of $1,500. He accepted $1,500 10% bill to settle his obligation with Anika on 30th July.
30 June Anika collected the bill in full amount on due that with the interest.
31 December Anika uses allowance method to estimate bad debt expense using balance sheet approach. An aging schedule indicates that $1,200 of accounts receivable will be uncollectible. 31 December Anika had an Accounts Receivable Balance of $41,000
a. Create a worksheet in your excel file and name it "Part A Q3". In column A to E set up general journal and input the necessary journal entries to record the transactions and events listed above. Explanations (narrations) for your journal entries are required. Copy it to the word document. Clearly show all supporting calculations in the columns to the right of the journal entries. Leave column G empty and input the heading "Calculations area:" in cell H1. Perform all calculations in this area of the worksheet. Show the calculations in narrative form in the cell next to the cell containing the formula (e.g. "($20,000*0.08=$1,600)"). Calculations should be rounded to the nearest cent (i.e. to two decimal places). Copy all the calculations to the word document.
b. Based on the transaction on 5th January 2010, do you think that the bad debt estimation was correct in 2009? Record your answer in word document.
c. In the rows below your journal, create a running balance ledger account. Prepare the account for Allowance for Bad Debts. To arrive at closing you must use the formula and these formulae will be checked. Copy it to the word document.
d. What closing balance of Allowance for Bad Debts you have arrived at? Is this balance equal to balance estimated as per ageing schedule (i.e. $ 1,500)? Why or why not? Give explanations. Record your answer in word document.
e. In the rows below the running balance ledger account, provide an extract from the balance sheet for the end of December 2010, showing how the assets from the transactions above would be reported under the Current Assets heading in the balance sheet. Copy it to the word document.