QUESTION THREE PART A Bill Ltd uses the allowance method to record bad debts expense and concludes, using the ageing of accounts receivable method, that 1% of accounts receivable (gross) will become uncollectable. Accounts receivable (gross) has a balance of $500 000 at the end of the year, and the Allowance for Doubtful Debts has a credit balance of $3000. REQUIRED: (a) Prepare the adjusting journal entry to record bad debts expense for the year (Narration is not required). (b) If the Allowance for Doubtful Debts had a debit balance of $800 instead of a credit balance of $3000, determine the amount to be reported for bad debts expense. PART B As a new internal auditor for Smart Phone Ltd, you have been assigned to review the internal controls over cash receipts of Smart Phone Ltd. Your review reveals that cheques are promptly endorsed 'For account of Smart Phone Ltd only' so that they can be deposited only to Smart Phone's bank account, but no list of the cheques is prepared by the person opening the mail. The mail is opened either by the cashier or by the employee who maintains the accounts receivable records. Cheques received in mail are deposited in the bank each week by the cashier. REQUIRED: Evaluate and identify the internal control weaknesses in Smart Phone Ltd and write your recommendations for improving the system