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Chapter 7: Question 22Q (page 362)
What is the accounts receivable turnover, and what type of information does it provide?
The receivables turnover ratio is calculated using the net sales and the average accounts receivables of the company toevaluate the liquidity of the business entity.
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On June 3, Arnold Company sold to Chester Company merchandise having a sale price of \(3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling \)90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company
Instructions
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.
The following are a series of unrelated situations. 1. Halen Company’s unadjusted trial balance at December 31, 2017, included the following accounts.
Debit \( | Credit \) | |
Accounts receivables | \(53,000 | |
Allowance for doubtful accounts | 4,000 | |
Net sales | \)1,200,000 |
Halen Company estimates its bad debt expense to be 7% of gross accounts receivable. Determine its bad debt expense for 2017.
2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2017, disclosed the following.
Amounts estimated to be uncollectible | \(180,000 |
Accounts receivables | 1,750,000 |
Allowance for doubtful accounts (per books) | 125,000 |
What is the net realizable value of Stuart’s receivables at December 31, 2017?
3. Shore Co. provides for doubtful accounts based on 4% of gross accounts receivable, The following data are available for 2017.
Credit sales during 2017 | \)4,400,000 |
Bad debt expenses | 57,000 |
Allowance for doubtful accounts 1/1/17 | 17,000 |
Collection of accounts written off in prior years (Customer credit was re-established) | 8,000 |
Customer accounts written off as uncollectible during 2017 | 30,000 |
What is the balance in Allowance for Doubtful Accounts at December 31, 2017?
4. At the end of its first year of operations, December 31, 2017, Darden Inc. reported the following information.
Accounts receivable, net of allowance for doubtful accounts | \(950,000 |
Customer accounts written off as uncollectible during 2017 | 24,000 |
Bad debt expense for 2017 | 84,000 |
What should be the balance in accounts receivable at December 31, 2017, before subtracting the allowance for doubtful accounts?
5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2017.
Debit | Credit | |
Net credit sales | \)750,000 | |
Allowance for doubtful accounts | $14,000 | |
Accounts receivables | 310,000 |
If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2017.
Instructions
Answer the questions relating to each of the five independent situations as requested.
(Transfer of Receivables without Recourse) JFK Corp. factored $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1½% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
Instructions
(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record the sale of receivables without recourse.
(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporation to record the purchase of receivables without recourse.
On January 1, 2017, Lombard Co. sells property for which it had paid \(690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for \)1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?
Under IFRS, receivables are to be reported on the balance sheet at:
(a) amortized cost.
(b) amortized cost adjusted for estimated loss provisions.
(c) historical cost.
(d) replacement cost.
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