Cash at bank 6120 bank charges 40 note receivable

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Cash at Bank 6,120 Bank Charges 40 Note Receivable 6,000 Interest Revenue 160 31 Accounts Receivable – W Hoad 1,400 Cash at Bank 1,400 31 Sales 20 Cash at Bank 20 31 Cash at bank 360 Accounts Payable – M Helms 360 31 Bank Charges 120 Cash at Bank 120 PROBLEM SET B 7.7 Bantax Ltd (a) $7,250. (b) $1,750 [($115,000 X 5%) – $4,000]. (c) $8,625 [($115,000 X 5%) + $2,875]. (d) Under the direct write-off method, accounts receivable are overstated because future estimated write-offs are not anticipated—write-offs are journalized as they occur. In contrast, under the allowance method, anticipated write-offs are estimated and reduce the ending accounts receivable balance. The resulting estimated balance of accounts receivable, stated at recoverable amount, then represents the present value of the cash flows expected to be derived from the receivable. IN-CLASS PROBLEM (Optional) PROBLEM SET B 7.8  Gleason Ltd (a) Dec. 31 Bad Debts Expense ($16,750 - $1,500) 15,250 Allowance for Doubtful Debts 15,250 (b) Dec. 31 Bad Debts Expense ($16,750 + $1,500) 18,250 Allowance for Doubtful Debts 18,250
(c) Allowance for Doubtful Debts 4,500 Accounts Receivable 4,500 (d) Bad Debts Expense 4,500 Accounts Receivable 4,500 (e) The advantages of the allowance method over the direct write-off method are that it attempts to show the recoverable amount of the accounts receivable on the balance sheet and recognises a bad debts expense when the loss of future economic benefits is probable.
SESSION TEN Chapter 8 Questions 8. After initial recognition of cost, each class of non-current asset may be measured on the cost or fair value basis. Any revaluations of non-current assets must be carried out by class of asset. For intangibles to be revalued there must be an active market. Increments and decrements within the same class must not be offset against one another. Any initial revaluation to a value above the up-to- date carrying amount is referred to as a revaluation increment and is credited directly to equity to an account entitled Revaluation Reserve. Any initial revaluation to a value below the up-to-date carrying amount is a revaluation decrement. A revaluation decrement is treated as an expense in the income statement. If in a subsequent period the initial revaluations reverse, the revaluation increment (decrement) for an asset it should be offset against the previous revaluation decrement (increment) of that asset, to the extent of the amount of the previous revaluations. For reversals against the Revaluation Reserve there must be balances available for that asset in the reserve. The steps to record the revaluation are: (a) Record the depreciation (if it is a depreciable asset) to date of revaluation (b) Transfer the balance of the contra account, Accumulated Depreciation, to the asset account to give the assets carrying value (c) Record the revaluation. 10. By selecting a higher estimated useful life, Betty Ltd is spreading the PPE asset’s cost over a longer period of time. The depreciation expense reported in each period is lower and profit is higher. Barney’s choice of a shorter estimated useful life will result in higher depreciation expense reported in each period and lower profit. Therefore, Betty Ltd may appear to be a better performer. EXERCISE 8.5 Abbey Ltd Balance date 30 June 1 Oct 2010 Equipment Cost

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