SK Limited is a merchandising company based in Australia and adopts the allowance method for doubtful accounts. The statement of financial position (balance sheet) at 31 December 2015 showed a credit balance of $58,000 in Allowance for Uncollectible Accounts. During the year ended 31 December 2016, the following transactions occurred:
Date Transaction 2016 12 January Sold goods to Jeff Wong for $32,000 with one-month credit 20 January Received payment from Alice Lee relating to her 30-day, 9% note for $9,000 that fell due for payment on this date. An accrual had been made for the interest earned up to 31 December 2015. 12 February Accepted a 60-day, 6% note for $32,000 from an existing debtor, Jeff Wong 5 April Wrote off an outstanding debt of $5,000 owed by Andrew Ha who was untraceable 12 April Payment was duly received from Jeff Wong upon the maturity of the note signed on 12 February. 23 May Received payment of $5,000 from Andrew Ha which had been written off on 5 April 30 July Sold goods to Joey Lee by accepting a 90-day, 6% note for $13,000 30 October The note dated 30 July from Joey Lee was dishonoured and returned by the bank. 15 December Wrote off the amount owed by Joey Lee as it was proved to be irrecoverable 18 December Sold goods to Mary Ma by accepting a 60-day, 5% note for $30,000 31 December Recorded the accrued interest on the note from Mary Ma
Required
a) Prepare journal entries to record the transactions during the year ended 31 December 2016. Use a 360-day year when performing interest calculations and round the interest to one decimal place.
b) After reviewing an aged list of accounts receivable at 31 December 2016, the credit manager of the company estimated an amount of $50,000 would become uncollectible. Prepare the allowance for doubtful accounts for the year ended 31 December 2016 (in T-account format).
c) Discuss why the allowance method of accounting for uncollectible accounts is better to match revenue and expense.
SK Limited is a merchandising company based in Australia and adopts the allowance method for doubtful accounts. The statement of financial position (balance sheet) at 31 December 2015 showed a credit balance of $58,000 in Allowance for Uncollectible Accounts. During the year ended 31 December 2016, the following transactions occurred:
Date | Transaction |
2016 | |
12 January | Sold goods to Jeff Wong for $32,000 with one-month credit |
20 January | Received payment from Alice Lee relating to her 30-day, 9% note for $9,000 that fell due for payment on this date. An accrual had been made for the interest earned up to 31 December 2015. |
12 February | Accepted a 60-day, 6% note for $32,000 from an existing debtor, Jeff Wong |
5 April | Wrote off an outstanding debt of $5,000 owed by Andrew Ha who was untraceable |
12 April | Payment was duly received from Jeff Wong upon the maturity of the note signed on 12 February. |
23 May | Received payment of $5,000 from Andrew Ha which had been written off on 5 April |
30 July | Sold goods to Joey Lee by accepting a 90-day, 6% note for $13,000 |
30 October | The note dated 30 July from Joey Lee was dishonoured and returned by the bank. |
15 December | Wrote off the amount owed by Joey Lee as it was proved to be irrecoverable |
18 December | Sold goods to Mary Ma by accepting a 60-day, 5% note for $30,000 |
31 December | Recorded the accrued interest on the note from Mary Ma |
Required
a) Prepare journal entries to record the transactions during the year ended 31 December 2016. Use a 360-day year when performing interest calculations and round the interest to one decimal place.
b) After reviewing an aged list of accounts receivable at 31 December 2016, the credit manager of the company estimated an amount of $50,000 would become uncollectible. Prepare the allowance for doubtful accounts for the year ended 31 December 2016 (in T-account format).
c) Discuss why the allowance method of accounting for uncollectible accounts is better to match revenue and expense.