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Chapter 8: Q27E (page 474)

Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:

2018

2017

Net Credit Sales

\( 594,920

\)602,000

Net Receivables at end of year

38,500

47,100

Requirements

1. Compute Unique鈥檚 days鈥� sales in receivables for 2018. (Round to the nearest day.)

2. Suppose Unique鈥檚 normal credit terms for a sale on account are 2/10, net 30. How well does Unique鈥檚 collection period compare to the company鈥檚 credit terms? Is this good or bad for Unique?

Short Answer

Expert verified
  1. The days鈥� sales in receivables is 26 days.
  2. The credit policy is good.

Step by step solution

01

Definition of accounts receivable turnover ratio

The accounts receivable turnover ratio says the number of times the company collects the average accounts receivable balance in a year.

02

Calculation of Day’s sales in receivables of the Unique

Accounts鈥夆赌�Turnover鈥夆赌�Ratio=Net鈥夆赌�Credit鈥夆赌�SalesAverage鈥夆赌�Net鈥夆赌�Accounts鈥夆赌�Receivables=$594,930$38,500+$47,1002=13.9鈥�times

Day's鈥夆赌�Sales鈥夆赌�in鈥夆赌�R鈥夆赌�Dayseceivables=AverageRecievables狈别迟鈥塩谤别诲颈迟鈥塻补濒别蝉脳365=$42,800$594,920脳365=26鈥夆赌夆��Days

03

Credit policy

As the company has a policy of 2/10 and a net of 30 days, the company is taking 26 days to collect receivables, which is within the credit policy. So the policy is considered good.

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Most popular questions from this chapter

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company鈥檚 transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

When is bad debts expense recorded when using the direct write-off method?

Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a

\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on

the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.

9. Journalize Johnson鈥檚 write-off of the uncollectible receivable.

10. Journalize Johnson鈥檚 collection of the previously written off receivable.

11. Journalize Johnson鈥檚 adjustment for bad debts expense.

P8-38B Accounting for uncollectible accounts (aging-of-receivables method),

notes receivable, and accrued interest revenue

Relax Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,

16% note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(14,900 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance

in Allowance for Bad Debts is \)10,700.

2019

Apr. 1 Collected the maturity value of the Go-Mart note.

Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.

Dec. 5 Collected in full on account from Allure, Corp.

31 Accrued the interest on the Tench, Inc. note.

Record the transactions in the journal of Relax Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

Recording credit sales and collections

Record the following transactions for Summer Consulting. Explanations are not required.

Apr. 15

Provided consulting services to Bob Jones and billed the customer \(1,500.

18

Provided consulting services to Samantha Cruise and billed the customer \)865.

25

Received \(750 cash from Jones.

28

Provided consulting services to Regan Taylor and billed the customer \)625.

28

Received \(865 cash from Cruise.

30

Received \)1,375 cash, \(750 from Jones and \)625 from Taylor
See all solutions

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