121. Abundant Returns
This company sells its merchandise only on credit. The following data are available at December 31, 2012.
Sales
$411,000
Sales returns and allowances
12,000
Accounts receivable at January 1, 2012
89,000
Allowance for doubtful accounts at January 1, 2012
4,100
Cash collections during 2012
385,100
Accounts written off as uncollected during 2012
3,600
Refer to Abundant Returns. Determine the balance of Accounts Receivable at December 31, 2012.
122. Abundant Returns
This company sells its merchandise only on credit. The following data are available at December 31, 2012.
Sales
$411,000
Sales returns and allowances
12,000
Accounts receivable at January 1, 2012
89,000
Allowance for doubtful accounts at January 1, 2012
4,100
Cash collections during 2012
385,100
Accounts written off as uncollected during 2012
3,600
Refer to Abundant Returns. The firm estimates that bad debts could be 2% of net sales.
A)
What amount will the company recognize as bad debts expense for the year?
B)
Assume that the company has a balance of Accounts Receivable of $108,900, and an Allowance for Doubtful Accounts of $820.
What will be the net realizable value once the adjustment from (Part A) is made?
A)
$411,000 – $12,000 = $399,000 (Net Sales) ´ .02 or 2% = $7,980
$108,900 (Accounts Receivables Balance) – ($820 + $7,980) = $100,100
123. Abundant Returns
This company sells its merchandise only on credit. The following data are available at December 31, 2012.
Sales
$411,000
Sales returns and allowances
12,000
Accounts receivable at January 1, 2012
89,000
Allowance for doubtful accounts at January 1, 2012
4,100
Cash collections during 2012
385,100
Accounts written off as uncollected during 2012
3,600
Refer to Abundant Returns. Assume that the company estimates bad debts using the aging method. The aging schedule indicates that $11,500 of the
end of the year Accounts Receivable will be uncollected.
A)
What amount will the company recognize as bad debt expense for the year?
B)
If the ending balance of Accounts Receivables is $65,200, what is the net realizable value of Accounts Receivable reported on
December 31, 2012?
124. On November 1, 2012, Aero Graphics sold merchandise to a customer and received a 10%, 90-day
promissory note with a principal amount of $60,000.
A)
Identify the maturity date of the note.
B)
How much total interest revenue will the company earn over the term of the note?
C)
By how much will net income be understated if the company fails to make a year-end adjusting entry for the note?
A)
B)
$60,000 ´ 10% ´ 90/365 = $1,479.45
Net income will be understated by $986.30 ($1,479.45 ´ 60/90)
125. Accutemp Heating & Air
On May 1, 2012, the company sold merchandise to a customer and received a 8%, 6-month note with a
principal amount of $100,000. The company’s year end is December 31.
A)
$11,500 – ($4,100 – $3,600) = $11,000
B)
$65,200 (Accounts Receivable) – $11,500 (Allowance) = $53,700
126. Accutemp Heating & Air
On May 1, 2012, the company sold merchandise to a customer and received a 8%, 6-month note with a
principal amount of $100,000. The company’s year end is December 31.
Refer to Accutemp Heating & Air. How much total interest revenue will the company recognize over the term
of the note?
127. Affinity Services Group received a 12%, 6-month promissory note with a principal amount of $10,000
from a customer for the sale of merchandise on December 1, 2012.
A)
How much interest revenue will the company recognize as of December 31, 2012?
B)
How much interest revenue will the company recognize in 2013?
C)
Determine the total amount of cash the company will collect on the date of the note’s maturity.
A)
$10,000 ´ 12% ´ 1/12= $100
B)
$10,000 ´ 12% ´ 5/12= $500
C)
$10,000 + ($10,000 ´ 12% ´ 6/12) = $10,600
128. On June 3, 2012, Alpine Corporation sold merchandise with a gross price of $45,000 with terms of 2/10,
n/30.
Prepare the journal entries to:
A)
Record the sale using the gross method.
B)
Assume the payment is received on June 10, 2012.
C)
Assume payment is not received until June 21, 2012.
A)
6/03
Accounts Receivable
45,000
Sales Revenue
B)
6/10
Cash ($45,000 ´ 98%)
44,100
Sales Discounts
Accounts Receivable
C)
6/21
Cash
45,000
129. Alpha Company’s accounts receivable and allowance for doubtful accounts balances were $100,000 and
$14,000 (credit) respectively, at the beginning of 2012. During 2012, a customer defaults on a $12,000 balance
related to goods purchased during 2011. By the end of the year, the company had made credit sales of
$2,400,000 and collected $2,200,000 on account. It now estimates that 1 percent of its credit sales will default.
A)
Prepare the journal entry to record the write off the bad debt.
B)
Prepare the adjusting entry to record bad debt expense for 2012.
C)
What is the net accounts receivable balance at the end of the year?
Allowance for Doubtful Accounts
12,000
Accounts Receivable
12,000
B)
Bad Debt Expense
24,000
Allowance for Doubtful Accounts
24,000
($2,400,000 ´ 1% = $24,000)
Net accounts receivable
$262,000
130. On January 1, 2012, Alliance Company had the following balances for accounts receivable and allowance
for doubtful accounts:
Accounts receivable
$750,000 (debit)
Allowance for doubtful accounts
50,000 (credit)
During 2012 the company made $3,200,000 in credit sales, collected $3,000,000 of accounts receivable and wrote off $20,000 of accounts receivable
as uncollected.
Required:
A)
What is the company’s preadjustment balance in accounts receivable on December 31, 2012?
B)
What is the preadjustment balance in allowance for doubtful accounts on December 31, 2012?
C)
Assume an analysis of aging of accounts receivable indicates that $45,000 of the current accounts receivable balance is uncollected.
By what amount will the allowance for doubtful accounts need to be adjusted?
D)
Prepare the adjusting entry for 2012 for Allowance for Doubtful Accounts.
Beginning Accounts Receivable January 1,
2012
$ 750,000
Plus Sales during 2012
3,200,000
Minus collections during 2012
-3,000,000
Minus accounts written off during 2012
– 20,000
Accounts Receivable December 31, 2012
$ 930,000
Beginning Allowance for doubtful accounts
$ 50,000
Minus accounts written off during 2012
– 20,000
Preadjustment balance Allowance for
$ 30,000
C)
Preadjustment balance Allowance for
doubtful accounts
$ 30,000
Adjustment to Allowance for doubtful
accounts
$ 15,000
12/31
Bad Debt Expense
15,000
Allowance for Doubtful Accounts
131. All American Storage Corporation sold merchandise with credit terms of 2/10, n/30, for $100,000 to a
customer on January 01, 2012. Nine months later, on October 1, 2012 the company accepted a 12%, 6-month
note receivable in settlement of the account. The customer paid the maturity value of the note on the due date.
Prepare the following journal entries:
A)
Record the sale of merchandise January 1, 2012.
B)
Record the receipt of the note receivable on October 1, 2012.
C)
Record the adjusting entry to accrue interest on December 31,
2012.
D)
What is the due date of the note?
E)
Record the collection of the note on the due date.
Jan. 1, 2012
Accounts Receivable
100,000
Sales Revenue
100,000
Oct. 1, 2012
Notes Receivable
100,000
Accounts Receivable
100,000
Dec. 31, 2012
Interest Receivable
3,000
Interest Income (100,000 x .12 x 6/12 x 1/2 )
3,000
D)
April 1, 2013
E)
April 1, 2013
Cash ($100,000 + 6,000 (interest))
106,000
Notes Receivable
100,000
Interest Receivable
3,000
Interest Revenue
3,000
132. The following information is available for All-4-U Company for the year ending December 31, 2012:
Net Sales
$5,000,000
Accounts Receivable December 31, 2011
$1,250,000
Cost of goods sold
$3,500,000
Accounts Receivable December 31, 2012
$1,000,000
Operating Income
$600,000
Net Income
$400,000
A)
Compute the gross profit ratio for 2012.
B)
Compute the operating margin ratio for 2012.
C)
Compute the net profit margin ratio for 2012.
D)
Compute the accounts receivable turnover for 2012.
133. The following comparative financial statements for the years ended December 31, 2012 and 2011 are
provided for Air Plus Company:
Balance
Sheet:
2012
2011
Cash and cash equivalents
$87,000
$71,600
Accounts receivables, less allowance for doubtful
accounts of $90 (2012) and $82 (2011)
3,800
2,500
Notes receivable
15,000
20,000
Income
Stateme
nt:
Net sales for the year
$9,700
$8,800
Net income for the year
920
1,050
Answer these questions concerning the company’s receivables:
A)
What is the gross amount of accounts receivable at December 31, 2012? Why is this amount different than the amount of receivables
shown in the 2012 column of the balance sheet?
B)
What is the net realizable value of accounts receivable at December 31, 2012? What does this amount represent?
C)
How should accounts receivable be classified on a classified balance sheet? Why?
A)
$3,800 + $90 = $3,890. It is different because, unlike the balance sheet presentation, it has not been adjusted for the estimated
B)
$3,800; This is the amount that the company expects to collect.
C)
Accounts receivable should be classified as a current asset since receivables are expected to be collected within a year’s time or less.
134. The following information was taken from the records of Alphabet Soup at the end of 2012:
Cash sales
$1,000,000
Credit sales
500,000
Sales discounts
5,000
Accounts Receivable
250,000
Allowance for Doubtful Accounts (before adjustment)
(25,000)
Estimated uncollected accounts
2,475
Cost of goods sold
$975,000
Determine the following:
A) Gross sales
B) Net sales
C) Gross profit
Assuming the company uses the income statement approach to estimating uncollectibles:
D) Bad debt estimate percentage
E) Year-end adjusting entry to record bad debt expense
F) Ending balance in Allowance for Doubtful Accounts after adjustment
G) Net realizable value of receivables after adjustment for bad debts
Assuming the company uses the balance sheet approach to estimating uncollectibles:
H) Gross receivables
I) Ending balance in Allowance for Doubtful Accounts after adjustment
J) Net realizable value of receivables after adjustment for bad debts
135. What are the criteria the SEC uses to determine if revenue is realized or realizable and earned?
Persuasive evidence of an arrangement exists.
Delivery has occurred or services have been provided.
The seller’s price to the buyer is fixed and determinable.
Collection is reasonably assured.
136. What is the purpose of an aging schedule for accounts receivable?
137. Airport Support Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are
2/10, n/20. What does this ratio tell you about this company?
138. Identify two methods of accelerating cash from sales.
139. You Decide Essay
You are the credit manager at a large retail department store. What steps should you take before deciding to
write off a customer’s account?
140. You Decide Essay
You are interning at a financial services firm and have been asked to evaluate the performance of two major
department stores. The following information (in millions) is available for Wal-Mart and Nordstrom for the
most recent fiscal periods available:
Wal-Mart
Net Sales
$405,046
Beginning Accounts Receivable
$4,144
Gross Profit
100,389
Ending Accounts Receivable
3,905
Operating Income
23,950
Net Income
14,848
Nordstrom
Net Sales
$8,627
Beginning Accounts Receivable
$1,942
Gross Profit
3,299
Ending Accounts Receivable
2,035
Operating Income
834
Net Income
441
Compute the (1) gross profit margin, (2) operating margin, (3) net profit margin, and (4) accounts receivable turnover for the two companies and
indicate which company’s performed better.
Gross profit margin
$100,389 / $405,046 = 24.78%
$3,299 / $8,627 = 38.24%
Operating margin
$23,950 / $405,046 = 5.91%
$834 / $8,627 = 9.67%
Net profit margin
$14,848 / $405,046 = 3.67%
$441 / $8,627 = 5.11%
Receivable turnover
405,046 / [($3,905 + $4,144) / 2] = 100.65
$8,627 / [$2,035 + $1,942) / 2] = 4.34