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Chapter 8: Q23RQ (page 465)
What does the accounts receivable turnover ratio measure, and how is it calculated?
The accounts receivable turnover ratio measures how usually the company can collect the amount of average accounts receivable in a year.
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Dialex Watches completed the following selected transactions during 2018 and 2019:
2018
Dec. 31 Estimated that bad debts expense for the year was 3% of credit sales of
\(410,000 and recorded that amount as expense. The company uses the
allowance method.
31 Made the closing entry for bad debts expense.
2019
Jan. 17 Sold merchandise inventory to Marty White, \)400, on account. Ignore Cost of
Goods Sold.
Jun. 29 Wrote off Marty White鈥檚 account as uncollectible after repeated efforts to
collect from him.
Aug. 6 Received \(400 from Marty White, along with a letter apologizing for being
so late. Reinstated White鈥檚 account in full and recorded the cash receipt.
Dec. 31 Made a compound entry to write off the following accounts as uncollectible:
Barry Krisp, \)1,600; Maria Bryant, \(1,100; and Richard Renik, \)400.
31 Estimated that bad debts expense for the year was 3% on credit sales of
\(490,000 and recorded the expense.
31 Made the closing entry for bad debts expense.
Requirements
1.Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming
the accounts begin with a zero balance. Record the transactions in the general
journal (omit explanations), and post to the two T-accounts.
2.Assume the December 31, 2019, balance of Accounts Receivable is \)136,000. Show
how net accounts receivable would be reported on the balance sheet at that date.
Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)
include the following:
During the last quarter of 2018, SMMC completed the following selected transactions:
鈥� Sales on account, \(475,000. Ignore Cost of Goods Sold.
鈥� Collections on account, \)451,800.
鈥� Wrote off accounts receivable as uncollectible: Randall, Co., \(1,800; Oliver Welch,
\)900; and Rain, Inc., \(500
鈥� Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1鈥�30 Days 31鈥�60
Days
61鈥�90
Days
Over 90
Days
Accounts Receivable \) 97,000 \( 37,000 \) 17,000 $ 14,000
Estimated percent uncollectible 0.3% 3% 30% 35%
Requirements
1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.
Journalize the transactions (omit explanations) and post to the two accounts.
2. Show how Spring Mountain Medical Center should report net accounts receivable
on its December 31, 2018, balance sheet.
How is the acid-test ratio calculated, and what does it signify?
Williams Company uses the direct write-off method to account for uncollectible receivables. On July 18, Williams wrote off a
$6,800 account receivable from customer W. Jennings. On August 24, Williams unexpectedly received full payment from Jennings
on the previously written off account.
7. Journalize Williams鈥檚 write-off on the uncollectible receivable.
8. Journalize Williams鈥檚 collection of the previously written off receivable
Question: Consider the following transactions for TLC Company.
2018
Dec. 6 Received a \(8,000, 90-day, 9% note in settlement of an overdue accounts
receivable from Forest Music.
31 Made an adjusting entry to accrue interest on the Forest Music note.
31 Made a closing entry for interest revenue.
2019
Mar. 6 Collected the maturity value of the Forest Music note.
Jun. 30 Loaned \)14,000 cash to Washington Music, receiving a six-month, 12% note.
Oct. 2 Received a $1,000, 60-day, 12% note for a sale to ZZZ Music. Ignore Cost of
Goods Sold.
Dec. 1 ZZZ Music dishonored its note at maturity.
1 Wrote off the receivable associated with ZZZ Music. (Use the allowance
method.)
30 Collected the maturity value of the Washington Music note
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