Additional Problem 9 Answer each of the following four parts assuming a balance
ID: 2515308 • Letter: A
Question
Additional Problem 9 Answer each of the following four parts assuming a balance date of 30 June, 2018 Journal narrations are not required Kane Pty Ltd entered into a loan of $10,000 on 1 March 2018 and was being charged interest at 12% simple per annum. (a) Prepare any required general journal adjusting entry for the financial year assuming no payment of interest has been made. Dele Pty Ltd had accounts receivable at 30 June 2018 totaling $76,100 Dr. T doubtful debts allowance at the same time was $2,310 Cr, but it was decided by the accountant to increase the allowance for doubtful debts to 2% of accounts receivable after writing off $3,100 in uncollectable accounts. he (b) Prepare the necessary general journal entries to record the above events. Lloris Pty Ltd purchased machinery for $380,000 on 1 March 2018. It is estimated that the machinery will have a working life of 10 years but the company believes it will only use the machinery for 6 years and then sell it for an estimated $20,000. The company uses the straight-line method of depreciation for the machinery. (c) The company purchased a computer on 1 July 2016 for $10,000. The company believes it will use the computer for ten years and can sell it at the end of that period for $500. The company uses the reducing balance method of depreciation and a depreciation rate of 26% pa. Prepare the necessary general journal entries to record the depreciation of the two assets for the financial year ending 30 June 2018. Dembele Pty Ltd paid $4,200 for 6 months advertising on the 1 January 2018. The transaction was initially recorded as an expense. (d)Explanation / Answer
Solution:
Date
General Journal
Debit
Credit
a)
June.30, 2018
Interest Expense (10,000*12%*2months / 12)
$200
Interest Payable
$200
b)
June.30, 2018
Bad Debt Expense (Refer Note 1)
$2,250
The Doubtful Debt Allowance
$2,250
c)
June.30, 2018
Depreciation Expense (Refer note 2)
$20,000
Accumulated Depreciation - Machinery
$20,000
June.30, 2018
Depreciation Expense (Refer Note 3)
$4,052
Accumulated Depreciation - Computer
$4,052
d)
June.30, 2018
No Entry is needed
Note 1 –
Accounts receivable balance after writing off uncollectible account balance = $76,100 – 3,100 = $73,000
The Doubtful Debt Account balance after writing off = $2,310 Cr – 3,100 Debit = $790 Debit
Estimated Uncollectible Amount = $73,000 Accounts Receivable x 2% = $1,460
We need to make the balance of Doubtful Debt Account to $1,460 Credit.
To do that we need to Credit the Doubtful Debt Account with $2,250 (1460 + 790) and Debit the Bad Debt Expenses.
Note 2 – The company can estimate the life of asset and book the depreciation based on that estimated life.
Annual Depreciation of Machinery = (Cost of asset 380,000 – Salvage Value 20,000) / Useful life 6
= 360,000 / 6
= 60,000
Depreciation Expense for 4 months (March to June) = 60,000 * 4/12 = $20,000
Note 3 – Depreciation expense for computer
Book Value of Asset at beginning of year
Depreciation Rate
Depreciation Expense
Book Value at the end of year
At purchased date July 1, 2016
10000
26%
2600
7400.00
1 July.2017
7400
26%
1924
5476.00
1 July.2018
5476
26%
1423.76
4052.24
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Date
General Journal
Debit
Credit
a)
June.30, 2018
Interest Expense (10,000*12%*2months / 12)
$200
Interest Payable
$200
b)
June.30, 2018
Bad Debt Expense (Refer Note 1)
$2,250
The Doubtful Debt Allowance
$2,250
c)
June.30, 2018
Depreciation Expense (Refer note 2)
$20,000
Accumulated Depreciation - Machinery
$20,000
June.30, 2018
Depreciation Expense (Refer Note 3)
$4,052
Accumulated Depreciation - Computer
$4,052
d)
June.30, 2018
No Entry is needed
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