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CHAPTER 8
SOLUTIONS TO EXERCISES—SET B
EXERCISE 8-1B
Jan. 6 Account Receivable — Chico Inc. .................. 8,400
Sales Revenue ........................................... 8,400
EXERCISE 8-2B
Jan. 10 Accounts Receivable—McCarty ..................... 1,700
EXERCISE 8-3B
(a) Accounts Receivable ............................................ 780,000
Sales Revenue ................................................ 780,000
EXERCISE 8-3B (Continued)
(c) Accounts Receivable ......................................... 2,000
Allowance for Doubtful Accounts .............. 2,000
(d) Bad Debt Expense .............................................. 18,200
Allowance for Doubtful Accounts .............. 18,200
Allowance for Doubtful Accounts
Beg. Bal. 9,000
(e) Accounts Receivable Allowance for Doubtful Accounts
Beg. Bal. 210,000 Collections 743,000 Beg. Bal. 9,000
(f) Net realizable value of receivables is $217,800 ($240,200 – $22,400)
EXERCISE 8-4B
(a) Dec. 31 Bad Debt Expense .................................. 600
Accounts Receivable—Elk Company 600
EXERCISE 8-5B
(a) Accounts Receivable Amount % Estimated Uncollectible
Current $60,000 2 $1,200
1–30 days past due 14,000 5 700
$9,500
(b) Mar. 31 Bad Debt Expense ................................... 6,900
(c) The total balance of receivables increased from 2013 to 2014. However,
of concern is the fact that each of the three categories of older accounts
EXERCISE 8-6B
December 31, 2013
Bad Debt Expense ........................................................... 10,400
Allowance for Doubtful Accounts
[(10% X $90,000) + $1,400] ................................. 10,400
EXERCISE 8-7B
Nov. 1 Notes Receivable ............................................. 90,000
Cash ........................................................... 90,000
Dec. 11 Notes Receivable ............................................. 4,500
Sales Revenue .......................................... 4,500
EXERCISE 8-8B
2013
May 1 Notes Receivable ............................................. 10,000
Accounts Receivable—S. Doisey ............ 10,000
EXERCISE 8-9B
MORRIS CORP.
Balance Sheet (partial)
October 31, 2014
(in thousands)
Receivables
Notes receivable ......................................................... $2,000
Accounts receivable ................................................... 3,400
EXERCISE 8-10B
(a) 2. Reviewing company ratings in the Dun and Bradstreet Reference Book
of American Business.
EXERCISE 8-11B
(a)
Accounts receivable
turnover
=$37,953
($4,359+ $3,942)/2 = 9.1 times
EXERCISE 8-11B (Continued)
(c) The balance in the allowance account increased $22 million ($158 – $136)
while its accounts receivable increased $439 million ($4,517 – $4,078).
As a result, the allowance for uncollectible accounts increased from
EXERCISE 8-12B
(a) At first glance it appears that Gordon’s liquidity had deteriorated over
the past year since the company’s current ratio has fallen from 1.5:1 to
1.3:1. However, it is taking the company less time to collect its
accounts receivable as evidenced by the higher accounts receivable
(b) Changes in the turnover ratios do not directly affect profitability. However,
improvements in turnover generally indicate that the company is better
(c) There are several steps that Gordon might have taken to improve its
receivables and inventory turnover:
Receivables
- The company could limit credit to only the best customers,
however, this could negatively affect sales.
EXERCISE 8-12B (Continued)
Inventory
- The company could limit the amount of inventory by improving its
purchasing relationships with suppliers. If inventory could be pur-
chased more frequently, required inventory levels could be reduced.
EXERCISE 8-13B
Mar. 3 Cash ($900,000 – $36,000) ............................... 864,000
EXERCISE 8-14B
One possible reason Auto-Shed chose to sell its receivables may have
EXERCISE 8-15B
May 10 Cash ($2,500 – $95) .......................................... 2,405
EXERCISE 8-16B
July 4 Cash ($300 – $12) ............................................. 288
EXERCISE 8-17B
(a)
Accounts Receivable
Beg 48,000
(b) The quality of earnings ratio is net cash provided by operating activities
divided by net income. If accrued sales exceed cash collections, then net
(c) If the company relaxed its credit requirements it should increase its esti-
