BE8-10 - Homework Solutions PDF

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Chapter 8 BE8-10 During its first year of operations. Fertig Company had credit sales of $3,000,000, of which $400,000 remained uncollected at year-end. The credit manager estimates that $18,000 of these receivables will become uncollectible. (a) Prepare the journal entry to record the estimated uncollectables (assume an unadjusted balance of zero in Allowance for Doubtful Accounts) Dec. 31

Bad Debt Expense Allowance for Doubtful Accounts

18,000 18,000

(b) Prepare the current assets section of the balance sheet for Fertig Company, assuming that in addition to the receivables it has cash of $90,000, merchandise inventory of $180,000, and supplies of $13,000 Current Assets Cash Accounts Receivable LESS: Allowance for Doubtful Accounts Inventory Supplies Total Current Assets

90,000 400,000 18,000

382,000 180,000 13,000 $665,000

(c) Calculate the accounts receivable turnover and average collection period. Assume that average net accounts receivable were $300,000. Explain what these measures tell us. Accounts receivable turnover = net credit sales/average net accounts receivable 3,000,000/300,000 accounts receivable turnover = 10 times Average collection period = 365/accounts receivable turnover 365/10 average collection period = 36.5 days...