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ACR SOLUTION (Continued)
HUDSON CORPORATION
Retained Earnings Statement
For the Month Ending January 31, 2017
Retained earnings, January 1 ............................................
$12,730
HUDSON CORPORATION
Balance Sheet
January 31, 2017
Assets
Current assets
Cash .............................................................
$16,332
Notes receivable .........................................
1,200
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable .......................................
$ 9,650
Income taxes payable ................................
862
Total liabilities ....................................................
$10,512
CT 8-1 FINANCIAL REPORTING PROBLEM
2014
(a)
Accounts receivable
turnover =
$182,795
($17,460 + $13,102) ÷ 2
(b) Note 2 under Accounts Receivable states that
As of September 27, 2014, the Company had two customers that
represented 10% or more of total trade receivables, one of which
accounted for 16% and the other 13%. As of September 28, 2013, the
(c) At 30.4 days, Apple’s average collection period appears reasonable. It
CT 8-2 COMPARATIVE ANALYSIS PROBLEM
(a) (1) Accounts receivable turnover ratio
Columbia Sportswear VF Corporation
$2,100,590
$12,154,784
(2) Average collection period
(b) The general rule for the average collection period is that it should not
greatly exceed the credit term period. VFC’s average collection period
CT 8-3 COMPARATIVE ANALYSIS PROBLEM
(a) (1) Accounts receivable turnover
Amazon.com Wal-Mart stores
$70,080
$485,651
(2) Average collection period
(b) The general rule for the average collection period is that it should not
CT 8-4 INTERPRETING FINANCIAL STATEMENTS
(a)
Accounts receivable
turnover
=
$2,981.8 = 11.7 times
($259.8* + $248.3**)/2
(b) Accounts receivable represent 24.9% [($270.4 – $10.6)/$1,044.9] of the
company’s current assets. This is a material amount of the current
assets.
(c) The ratios would probably vary throughout the year as receivables
increase during the busy season and decrease in the “off” season. To
(d) It is difficult to evaluate Scotts’ credit risk with only a single year’s data
and no industry norms. An average collection period of 31.2 days may be
reasonable for the type of customers that make up Scotts’ receivables.
CT 8-4 (Continued)
(e) Note 19 addressed the issues that surround credit risk. It provided the
reader with at least a moderate degree of “comfort” that Scotts’
CT 8-5 REAL-WORLD FOCUS
(a) Factoring invoices enhances cash flow and allows a company to meet
business expenses and take on new opportunities. The benefits of
factoring include:
CT 8-6 RESEARCH CASE
(a) InBev told its suppliers that it would take up to 120 days to pay. This is
compared to 30 days previously.
(c) Companies with sales of more than $5 billion took an average of
55.8 days to pay suppliers and they took an average of 41 days to
of 58.9 days to collect from customers.
(d) If a company negotiates payment terms that are too severe for its
CT 8-7 DECISION MAKING ACROSS THE ORGANIZATION
(a)
2017 2016 2015
Net credit sales .................................. $500,000 $600,000 $400,000
Credit and collection expenses
Collection agency fees ............. $ 2,900 $ 2,600 $ 1,600
(b) Average accounts receivable (5%) .... $ 25,000 $ 30,000 $ 20,000
Investment earnings (10%) ............... $ 2,500 $ 3,000 $ 2,000
(c) The analysis shows that the credit card fee of 4% of net credit sales will
CT 8-7 (Continued)
Finally, the decision hinges on (1) the accuracy of investment earnings,
(2) the expected trend in credit sales, and (3) the effect the new policy
will have on sales. Nonfinancial factors include the effects on customer
CT 8-8 COMMUNICATION ACTIVITY
To: John Doe, President
From: Mary Jane, Student
Re: Improving debt-paying ability
Date: September 14, 2017
The first step that should be taken to improve your company’s debt-paying
ability is to accelerate collections of your accounts receivable. The current
credit policy (i.e., “pay when they can”) encourages slow payment from credit
customers. Most companies have a 30-day credit period with finance charges
applied on late payments. You may also want to consider adopting a discount
CT 8-9 ETHICS CASE
(a) The stakeholders in this situation are:
The president of Mendez Corp.
(b) Yes. The controller is posed with an ethical dilemma—should he/she
follow the president’s “suggestion” and prepare misleading financial
(c) No. Mendez Corp.’s growth rate should be a product of fair and accurate
financial statements, not vice versa. That is, one should not prepare
CT 8-10 ALL ABOUT YOU
(a) There are a number of sources that compare features of credit cards. Here
are three: www.creditcards.com/, www.federalreserve.gov/pubs/shop/,
and www.creditorweb.com/.
CT 8-11 FASB CODIFICATION ACTIVITY
(a) Receivables represent contractual rights to receive money on fixed or
determinable dates, whether or not there is any stated provision for
interest. Receivables may arise from credit sales, loans, or other
(b) The conditions under which receivables exist usually involve some
degree of uncertainty about their collectibility, in which case a contin-
gency exists.
Subtopic 450-20 requires recognition of a loss when both of the
following conditions are met:
a. Information available prior to issuance of the financial statements
indicates that it is probable that an asset has been impaired at the
date of the financial statements.
IFRS 8-1 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Note 1.17 states: Trade accounts receivable are recorded at their face
value. A provision for impairment is recorded if their net realizable
value, based on the probability of their collection, is less than their
carrying amount.
(b) Note 11 indicates that provisions for impairment and product returns
accounted for the difference between gross and net trade accounts
receivable.
