|ACC202: Financial and Managerial Accounting|
Samantha Teo started a home-based food business after Singapore entered into phase 3 of Reopening. She began operations and completed five transactions in February that resulted in the following accounts. All the accounts have normal balances.
Prepaid insurance 1,000
Kitchen equipment 8,000
Accounts payable 8,000
Samantha Teo, Capital 20,000
Food expenses 1,400
(a) Present a trial balance for this business at the end of February.
(b) Examine the accounts and their balances and prepare a list that describes each of the five most likely transactions.
(c) Prepare the journal entries for these transactions.
The COVID-19 pandemic has affected one of your customers, NEST Ltd adversely. Even though the economies are fast recovering, they have contacted your company to request to purchase on credit instead of cash on delivery. Your boss, Alan, the Marketing Manager has instructed you to review their request. He has asked you to review NEST Ltd’s latest set of financial statements.
(a) Identify the key financial statements. Explain how the information reported in these statements will help you to decide whether to accede to NEST Ltd’s request.
(b) In addition, identify other information that will be helpful in deciding whether to accede to NEST Ltd’s request?
(c) You have also noticed that compared to last year, the allowance for bad debt for Nest Ltd has increased from 2% to 4 % of the accounts receivable. Discuss how this information will impact your review
The following transactions were completed by TAG Ltd during the current year ended 31 December.
21-Feb Received a cheque of $2,025 from Eagle Trading which has been written off last year as bad debt.
22-Feb Deposited the cheque from Eagle Trading into the company’s bank account.
31-Mar Wrote off the $5,500 balance owed by Peacock Pte Ltd which has become bankrupt.
7-Jul Received 35% of the $8,800 balance owed by Hydro Ltd from its liquidator. Hydro Ltd has since been wound up by the liquidator.
29-Aug Reinstate the account of MT & Son which had been written off two years earlier as bad debt. Recorded the receipt of $1,200 cash in full payment.
31-Dec Wrote off the following accounts as bad debt: Bintan Trading, $10,050; Bright Photo Studio, $7,200; Milan Furniture, $3,775; Ocean Trading, $2,820.
A review was done on the collectability of the accounts receivable on 31 December. Based on the analysis of the $787,550 balance of accounts receivable, it was estimated that $32,500 will be uncollectible.
The allowance for bad debts has a credit balance of $30,000 at the beginning of the year, 1 January.
The company uses the Allowance Method of accounting for doubtful debt.
(a) Present the journal entries for the transactions above.
(b) Journalise the adjusting entry. Show workings.
(c) Determine the net realizable value of the accounts receivable as of 31 Dec.
(d) Is the Allowance Method of accounting for doubtful debt better compared to the direct write-off method? Explain