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Chapter 8: Q8-24RQ (page 465)
What do the days’ sales in receivables indicate, and how is it calculated?
Answer
Days’ sales in receivables indicate how many days it takes to collect the average level of accounts receivable. It is calculated by dividing 365 byaccounts receivable turnover ratio.
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Lovett Company reported the following selected items at March 31, 2018 (last year’s—2017—amounts also given as needed):
Accounts Payable \( 128,000 Accounts Receivable, net:
Cash 104,000 March 31, 2018 \) 108,000
Merchandise Inventory: March 31, 2017 68,000
March 31, 2018 116,000 Cost of Goods Sold 460,000
March 31, 2017 80,000 Short-term Investments 56,000
Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000
Long-term Assets 168,000 Other Current Liabilities 72,000
Long-term Liabilities 52,000
14. Compute Lovett’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables as of
March 31, 2018.
At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:
a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.
b. Collections on account, \)135,000.
c. Write-offs of uncollectible receivables, $2,300.
Requirements
1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.
Consider the following transactions for CC Publishing.
2018
Dec. 6 Received a \(18,000, 90-day, 6% note in settlement of an overdue accountsreceivable from Go Go Publishing.
31 Made an adjusting entry to accrue interest on the Go Go Publishing note.
31 Made a closing entry for interest revenue.
2019
Mar. 6 Collected the maturity value of the Go Go Publishing note.
Jun. 30 Loaned \)11,000 cash to Lincoln Music, receiving a six-month, 20% note.
Oct. 2 Received a $2,400, 60-day, 20% note for a sale to Tusk Music. Ignore Cost ofGoods Sold.
Dec. 1 Tusk Music dishonored its note at maturity.
1 Wrote off the receivable associated with Tusk Music. (Use the allowance method.)
30 Collected the maturity value of the Lincoln Music note.
Journalize all transactions for CC Publishing. Round all amounts to the nearest dollar.
What are some limitations of using the direct write-off method?
List some common examples of other receivables, besides accounts receivable and notes receivable.
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