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210. The 2017 annual report of Ski Products, Inc. reported the following amounts (in millions of dollars):
Net sales, for the year ended May 31, 2017 $15,111.2
Receivables, May 31, 2017 989.4
Receivables, May 31, 2016 1,011.6
Required
1. Compute Ski’s accounts receivable turnover ratio for the year ended May 31, 2017. (Assume that all sales are on
credit.)
2. What is the average collection period in days for an account receivable? Explain your answer.
3. Ski’s main products are medium to high-end skis and snow boards. Give some examples of the types of customers you
would expect Ski to have. Do you think the average collection period for sales to these customers is reasonable? What
other information do you need to fully answer that question?
2.
Average collection period (assuming 360 days in a year):
3. Types of customers Ski might have:
• Athletic goods wholesalers
• Winter/outdoors wholesalers
• Sporting goods chains
• Outdoors outfitter chains
• Winter resort specialty stores
Whether or not an average of 23.8 days to collect an account is reasonable depends on several factors. For example, how
does this compare with other companies in the same industry as Ski? How does it compare with prior years? What are
Ski’s credit terms? If its credit terms are 2/10, n/30, an average collection period of 23.8 days may be good, but not if the
Chapter 7
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211. Rafter.com received a 10%, 90-day promissory note with a face amount of $12,000 from Joyce Company, for the
sale of merchandise on November 1, 2017.
A) Identify the maturity date of the note. __________
B) How much interest income (to the nearest whole month) will Rafter.com earn over the term of the note?
C) How much interest income will Rafter.com recognize during 2017?
212. Cyprus Corp. received a 7%, six-month promissory note with a face amount of $8,000 from Mustafa Company for
the sale of merchandise on May 1, 2017. Cyprus’ accounting year-end is December 31.
Required
Identify the maturity date of the note.
Chapter 7
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213. Cyprus Corp. received a 7%, six-month promissory note with a face amount of $8,000 from Mustafa Company for
the sale of merchandise on May 1, 2017. Cyprus’ accounting year-end is December 31.
Required
How much interest income will Cyprus Corp. recognize over the term of the note?
214. Hemmer Company received a 12%, six-month promissory note with a face amount of $10,000 from Stutfeld
Company for the sale of merchandise on December 1, 2017.
A) Which party is the maker? __________
B) Which party is the payee? __________
C) Determine the maturity value of the note.
Chapter 7
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215. On September 1, 2017, Fox Corp. accepted a six-month, 6%, $65,000 interest-bearing note from Rudy Company in
payment of an accounts receivable. Fox’s year-end is December 31. Rudy paid the note and interest on the due date.
Required
1. Who is the maker and who is the payee of the note?
2. What is the maturity date of the note?
3. Analyze the adjustments that Fox needs to make in connection with this note.
2. The maturity date is March 1, 2018.
3.
2017
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216. Speed Wear Bicycle Gear accepts VISA credit cards from its customers. Speed Wear is closed on Sundays and on
that day records the weekly sales and remits the credit card drafts to VISA. For the week ending on Sunday, April 12, cash
sales totaled $3,650, and credit card sales amounted to $3,900. On April 15, Speed Wear received $3,794.70 from VISA
as payment for the credit card drafts. Analyze the necessary adjustments on April 12 and 15. As a percentage, what
collection fee is VISA charging Speed Wear?
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Chapter 7
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217. On September 20, Mendes Inc. presents credit card drafts to its bank in the amount of $10,000; the collection charge
is 4%.
Required
Analyze the adjustments needed on Mendes’ books on September 20, the date of deposit.
Chapter 7
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218. On August 16, 2017, Blenim Corp. purchases 6,000 shares of common stock in Mountain Inc. at a market price of
$17 per share. In addition, Blenim pays brokerage fees of $2,000. On October 21, 2017, Blenim sells the Mountain stock
for $12 per share.
Required
Analyze the adjustments needed on Blenim’s books in connection with the investment beginning with the purchase of the
common stock on August 16, 2017, and the sale on October 21, 2017.
Chapter 7
Chapter 7
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219. On May 31, 2017, Evergreen Corp. purchased a 120-day, 6% certificate of deposit for $60,000. The CD was
redeemed on September 28, 2017. Analyze the adjustments needed on Evergreen’s books to account for:
a. The purchase of the CD.
b. The accrual of interest adjustment for interest earned through June 30, the end of the company’s fiscal year.
c. The redemption of the CD. Assume 360 days in a year.