Open-Source Electronics Ltd (OSE) has a 31 December financial year end. On 1 January 2016, the...

 

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Open-Source Electronics Ltd (OSE) has a 31 December financial year end. On 1 January 2016, the accounts receivable account had a balance of $5,000,000. During the financial year 2016, OSE (a) Recorded $23,000,000 in net sales revenue with 70% of sales on credit. (b) Collected $17,180,000 of its receivables in cash and (c) Wrote off customer accounts amounting to $70,000 and $50,000 on 31 July and 20 November, respectively. Experience suggests that 5% of its accounts receivable is uncollectible. OSE uses the allowance method to determine the impairment loss of accounts receivable. Required (i) Prepare journal entries to write off of the accounts of customer on 20 November, 2016. (1 mark) (ii) Determine the amount of impairment loss of accounts receivable on 31 December 2016 and prepare the necessary journal entries. (2 marks) (iii) Complete the following table, indicating both the amount and effect (positive number for increase, negative number for decrease, and NE for no effect) of the impairment loss calculated in (ii) Gross profit Net income Accounts Receivable (Net) Owner's equity (2 marks) (iv) Independent to your answers in sections (i), (ii) and (iii) above, OSE provides a one year warranty on all its electronic products. The warranty is an assurance against manufacturing defects. In December 2016, OSE sold $500,000 worth of electronic products. The cost of the goods sold was $250,000 and OSE estimates the cost of repairs under the warranty to be $5,000. During the financial year ended December 2017, OSE incurred cost of $3,000 to repair the products under warranty that were sold in December 2016. It also incurred costs of $1,000 on repairs that did not fall under the warranty agreement and charged its customers $1,200 for these repairs. OSE complies with FRS 18 Revenue and FRS 37 Provision, Contingent Liabilities and Contingent Assets. Required: 1. Prepare journal entries to record the sale of the electronic products and the warranty for the financial years ended 31 December 2016 and 31 December 2017. Open-Source Electronics Ltd (OSE) has a 31 December financial year end. On 1 January 2016, the accounts receivable account had a balance of $5,000,000. During the financial year 2016, OSE (a) Recorded $23,000,000 in net sales revenue with 70% of sales on credit. (b) Collected $17,180,000 of its receivables in cash and (c) Wrote off customer accounts amounting to $70,000 and $50,000 on 31 July and 20 November, respectively. Experience suggests that 5% of its accounts receivable is uncollectible. OSE uses the allowance method to determine the impairment loss of accounts receivable. Required (i) Prepare journal entries to write off of the accounts of customer on 20 November, 2016. (1 mark) (ii) Determine the amount of impairment loss of accounts receivable on 31 December 2016 and prepare the necessary journal entries. (2 marks) (iii) Complete the following table, indicating both the amount and effect (positive number for increase, negative number for decrease, and NE for no effect) of the impairment loss calculated in (ii) Gross profit Net income Accounts Receivable (Net) Owner's equity (2 marks) (iv) Independent to your answers in sections (i), (ii) and (iii) above, OSE provides a one year warranty on all its electronic products. The warranty is an assurance against manufacturing defects. In December 2016, OSE sold $500,000 worth of electronic products. The cost of the goods sold was $250,000 and OSE estimates the cost of repairs under the warranty to be $5,000. During the financial year ended December 2017, OSE incurred cost of $3,000 to repair the products under warranty that were sold in December 2016. It also incurred costs of $1,000 on repairs that did not fall under the warranty agreement and charged its customers $1,200 for these repairs. OSE complies with FRS 18 Revenue and FRS 37 Provision, Contingent Liabilities and Contingent Assets. Required: 1. Prepare journal entries to record the sale of the electronic products and the warranty for the financial years ended 31 December 2016 and 31 December 2017.

Answer rating: 100% (QA)

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