Financial accounting 13th edition warren solutions manual 1 by kelly.kwiecien858

Financial Accounting 13th Edition Warren

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CHAPTER 9 RECEIVABLES

DISCUSSION QUESTIONS

1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables.

2. Dan’s Hardware should use the direct write-off method because it is a small business that has a relatively small number and volume of accounts receivable.

3. Contra asset, credit balance

4. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $661,500 ($673,400 – $11,900) in the Current Assets section of the balance sheet. In this case, the amount of the allowance for doubtful accounts should be shown separately in a note to the financial statements or in parentheses on the balance sheet. Alternatively, the accounts receivable may be shown at the gross amount of $673,400 less the amount of the allowance for doubtful accounts of $11,900, thus yielding net accounts receivable of $661,500.

5. (1) The percentage rate used is excessive in relationship to the accounts written off as uncollectible; hence, the balance in the allowance is excessive.

(2) A substantial volume of old uncollectible accounts is still being carried in the accounts receivable account.

6. An estimate based on analysis of receivables provides the most accurate estimate of the current net realizable value.

7. a. Sailfish Company

b. Notes Receivable

8. The interest will amount to $5,100 ($85,000 × 6%) only if the note is payable one year from the date it was created. The usual practice is to state the interest rate in terms of an annual rate, rather than in terms of the period covered by the note.

9. Debit Accounts Receivable for $243,600

9-2 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cash 245,427 Accounts Receivable [$240,000 + ($240,000 × 6% × 90/360)] 243,600 Interest Revenue 1,827 ($243,600 × 30/360 × 9% = $1,827). Credit Notes Receivable for $240,000 Credit Interest Revenue for $3,600 10.

Receivables

PE 9–1A Feb. 12 Cash 800 Bad Debt Expense 2,400 Accounts Receivable Leo Jorgenson 3,200 May 3 Accounts Receivable Leo Jorgenson 2,400 Bad Debt Expense 2,400 3 Cash 2,400 Accounts Receivable Leo Jorgenson 2,400 PE 9–1B Oct. 2 Cash 600 Bad Debt Expense 1,350 Accounts Receivable—Rachel Elpel 1,950 Dec. 20 Accounts Receivable—Rachel Elpel 1,350 Bad Debt Expense 1,350 20 Cash 1,350 Accounts Receivable—Rachel Elpel 1,350 PE 9–2A Feb. 12 Cash 800 Allowance for Doubtful Accounts 2,400 Accounts Receivable Leo Jorgenson 3,200 May 3 Accounts Receivable Leo Jorgenson 2,400 Allowance for Doubtful Accounts 2,400 3 Cash 2,400 Accounts Receivable Leo Jorgenson 2,400

CHAPTER 9

PRACTICE EXERCISES

Receivables PE 9–2B Oct. 2 Cash 600 Allowance for Doubtful Accounts 1,350 Accounts Receivable Rachel Elpel 1,950 Dec. 20 Accounts Receivable Rachel Elpel 1,350 Allowance for Doubtful Accounts 1,350 20 Cash 1,350 Accounts Receivable Rachel Elpel 1,350 PE 9–3A a. $55,500 ($7,400,000 × 0.0075) b. Adjusted Balance Accounts Receivable…………………………………………………… $685,000 Allowance for Doubtful Accounts ($9,000 + $55,500)…………… 64,500 Bad Debt Expense……………………………………………………… 55,500 c. Net realizable value ($685,000 – $64,500)………………………… $620,500 PE 9–3B a. $231,500 ($46,300,000 × 0.0050) b. Adjusted Balance Accounts Receivable…………………………………………………… $3,460,000 Allowance for Doubtful Accounts ($231,500 – $12,500)………… 219,000 Bad Debt Expense……………………………………………………… 231,500 c. Net realizable value ($3,460,000 – $219,000)……………………… $3,241,000

CHAPTER 9

Sept. 6 Cash 210,875 Notes Receivable 210,000 Interest Revenue 875 PE 9–4A

$41,000 ($50,000 –$9,000)

Adjusted Balance Accounts Receivable………………………………………………… $685,000 Allowance for Doubtful Accounts………………………………… 50,000 Bad Debt Expense……………………………………………………… 41,000 c. Net realizable value ($685,000 – $50,000)………………………… $635,000 PE 9–4B

$257,500 ($245,000 + $12,500)

Adjusted Balance Accounts Receivable………………………………………………… $3,460,000 Allowance for Doubtful Accounts………………………………… 245,000 Bad Debt Expense……………………………………………………… 257,500 c. Net realizable value ($3,460,000 – $245,000)…………………… $3,215,000

9–5A

CHAPTER 9 Receivables

August …………………………………………………………….…… 24 days (31 –7) September……………………………………………………………… 6 days Total……………………………………………………………………… 30 days

$210,875

a. The due date for the note is September 6, determined as follows:

[$210,000 + ($210,000 × 5% × 30/360)] c.

CHAPTER 9 Receivables

a. The due date for the note is August 7, determined as follows: April……………………………………………………………………

9-6

….

… 31

120

days May…………………………………………………………………….

days June……………………………………………………………………

days July…………………………………………………………………

August………………………………………………………….……

days

days Total……………………………………………………………………

days

$462,000 [$450,000

($450,000

PE 9–5B (30 – 9) Aug. 7 Cash 462,000 Notes Receivable 450,000 Interest Revenue 12,000 PE 9–6A a. Accounts Receivable Turnover 2014 2013 Net sales…………………………… Accounts receivable: Beginning of year……………… End of year……………………… Average accts. receivable………… $2,912,000 $2,958,000 $ 300,000 $ 280,000 $ 340,000 $ 300,000 $ 320,000 $ 290,000 Accts. receivable turnover……… [($300,000 + $340,000) ÷ 2] 9.1 [($280,000 + $300,000) ÷ 2] 10.2 ($2,912,000 ÷ $320,000) ($2,958,000 ÷ $290,000) b. Number of Days’ Sales in Receivables 2014 2013 Net sales……………………………… Average daily sales………………… Average accts. receivable………… Number of days’ sales in receivables……………………… $2,912,000 $2,958,000 $ 7,978.1 $ 8,104.1 ($2,912,000 ÷ 365 days) ($2,958,000 ÷ 365 days) $ 320,000 $ 290,000 [($300,000 + $340,000) ÷ 2] [($280,000 + $300,000) ÷ 2] 40.1 days 35.8 days ($320,000 ÷ $7,978.1) ($290,000 ÷ $8,104.1)

× 8% × 120/360)] c.

c. The decrease in the accounts receivable turnover from 10.2 to 9.1 and the increase in the number of days’ sales in receivables from 35.8 days to 40.1 days indicate unfavorable trends in the efficiency of collecting receivables.

CHAPTER 9 Receivables

c. The increase in the accounts receivable turnover from 11.8 to 13.4 and the decrease in the number of days’ sales in receivables from 30.9 days to 27.2 days indicate favorable trends in the efficiency of collecting receivables.

PE 9–6B a. Accounts Receivable Turnover 2014 2013 Net sales………………………………… Accounts receivable: Beginning of year………………… End of year………………………… Average accts. receivable…………… Accts. receivable turnover…………… $7,906,000 $6,726,000 $ 600,000 $ 540,000 $ 580,000 $ 600,000 $ 590,000 $ 570,000 [($600,000 + $580,000) ÷ 2] [($540,000 + $600,000) ÷ 2] 13.4 11.8 ($7,906,000 ÷ $590,000) ($6,726,000 ÷ $570,000) b. Number of Days’ Sales in Receivables 2014 2013 Net sales………………………………… Average daily sales…………………… Average accts. receivable…………… Number of days’ sales in receivables………………………… … $7,906,000 $6,726,000 $ 21,660.3 $ 18,427.4 ($7,906,000 ÷ 365 days) ($6,726,000 ÷ 365 days) $ 590,000 $ 570,000 [($600,000 + $580,000) ÷ 2] [($540,000 + $600,000) ÷ 2] 27.2 days 30.9 days ($590,000 ÷ $21,660.3) ($570,000 ÷ $18,427.4)

CHAPTER 9 Receivables

EXERCISES

Ex. 9–1

Accounts receivable from the U.S. government are significantly different from receivables from commercial aircraft carriers such as Delta and United. Thus, Boeing should report each type of receivable separately. In its filing with the Securities and Exchange Commission, Boeing reports the receivables together on the balance sheet, but discloses each receivable separately in a note to the financial statements.

Ex. 9–2

a. MGM Resorts International: 22.6% ($93,760,000 ÷ $415,654,000)

b. Johnson & Johnson: 3.4% ($340,000,000 ÷ $10,114,000,000)

c. Casino operations experience greater bad debt risk, since it is difficult to control the creditworthiness of customers entering the casino. In addition, individuals who may have adequate creditworthiness could overextend themselves and lose more than they can afford if they get caught up in the excitement of gambling. In contrast, Johnson & Johnson’s customers are primarily other businesses such as grocery store chains.

3 Jan. 30 Accounts Receivable—Dr. Cindy Mott 85,000 Sales 85,000 30 Cost of Merchandise Sold 50,000 Merchandise Inventory 50,000 June 3 Cash 48,000 Bad Debt Expense 37,000 Accounts Receivable—Dr. Cindy Mott 85,000 Nov. 27 Accounts Receivable—Dr. Cindy Mott 37,000 Bad Debt Expense 37,000 27 Cash 37,000 Accounts Receivable—Dr. Cindy Mott 37,000

Ex. 9–

9-10 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Bad Debt Expense 11,750 Accounts Receivable Wil Treadwell 11,750 Allowance for Doubtful Accounts 11,750 Accounts Receivable—Wil Treadwell 11,750 Account Due Date Number of Days Past Due Avalanche Auto August 8 84 (23 + 30 + 31) Bales Auto October 11 20 (31 – 11) Derby Auto Repair June 23 130 (7 + 31 + 31 + 30 + 31) Lucky’s Auto Repair September 2 59 (28 + 31) Pit Stop Auto September 19 42 (11 + 31) Reliable Auto Repair July 15 108 (16 + 31 + 30 + 31) Trident Auto August 24 68 (7 + 30 + 31) Valley Repair & Tow May 17 167 (14 + 30 + 31 + 31 + 30 + 31) Ex. 9–4 Mar. 19 Accounts Receivable—Midnight Delights Co. 37,500 Sales 37,500 19 Cost of Merchandise Sold 23,000 Merchandise Inventory 23,000 Aug. 31 Cash 22,000 Allowance for Doubtful Accounts 15,500 Accounts Receivable Midnight Delights Co. 37,500 Dec. 22 Accounts Receivable Midnight Delights Co. 15,500 Allowance for Doubtful Accounts 15,500 22 Cash 15,500 Accounts Receivable Midnight Delights Co. 15,500 Ex. 9–5 a. b. Ex. 9–6 a. $501,000 ($66,800,000 × 0.0075) b. $493,000 ($475,000 + $18,000) c. d. $334,000 ($66,800,000 × 0.0050) $350,000 ($360,000 – $10,000) Ex. 9–7

CHAPTER 9 Receivables

Ex. 9–8

Ex. 9–9

a. Customer Due Date Number of Days Past Due Color World Industries March 13 171 days (18 + 30 + 31 + 30 + 31 + 31) Hawks Company June 29 63 days (1 + 31 + 31) Osler Inc. July 8 54 days (23 + 31) Sather Sales Company September 6 Not past due Wisdom Company August 25 6 days (31 – 25) b. Aging of Receivables Schedule August 31 Customer Balance Not Past Due Days Past Due 1–30 31–60 61–90 Over 90 Allied Industries Inc. 3,000 3,000 Archer Company 4,500 4,500 Zussman Company 5,000 5,000 Subtotals 750,000 480,000 160,000 75,000 28,000 7,000 Color World Industries 33,000 33,000 Hawks Company 15,000 15,000 Osler Inc. 21,000 21,000 Sather Sales Company 8,000 8,000 Wisdom Company 6,500 6,500 Totals 833,500 488,000 166,500 96,000 43,000 40,000

Balance Not Past Due Days Past Due 1–30 31–60 61–90 Over 90 Total receivables 833,500 488,000 166,500 96,000 43,000 40,000 Percentage uncollectible 2% 6% 12% 30% 75% Allowance for doubtful accounts 74,170 9,760 9,990 11,520 12,900 30,000

Ex. 9–10 Aug. 31 Bad Debt Expense 67,820 Allowance for Doubtful Accounts 67,820 Uncollectible accounts estimate ($74,170 – $6,350). Ex. 9–11 Age Interval Balance Estimated Uncollectible PercentAccountsAmount Not past due $ 740,000 0.5% $ 3,700 1–30 days past due 390,000 2% 7,800 31–60 days past due 85,000 4% 3,400 61–90 days past due 28,000 14% 3,920 91–180 days past due 42,000 32% 13,440 Over 180 days past due 15,000 80% 12,000 Total $1,300,000 $44,260 Ex. 9–12 2014 Dec. 31 Bad Debt Expense 47,635 Allowance for Doubtful Accounts 47,635 Uncollectible accounts estimate ($44,260 + $3,375).

CHAPTER 9 Receivables

9-13 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Apr. 13 Bad Debt Expense 8,450 Accounts Receivable Dean Sheppard 8,450 May 15 Cash 500 Bad Debt Expense 6,600 Accounts Receivable Dan Pyle 7,100 July 27 Accounts Receivable Dean Sheppard 8,450 Bad Debt Expense 8,450 27 Cash 8,450 Accounts Receivable Dean Sheppard 8,450 Dec. 31 Bad Debt Expense 13,510 Accounts Receivable Paul Chapman 2,225 Accounts Receivable Duane DeRosa 3,550 Accounts Receivable Teresa Galloway 4,770 Accounts Receivable Ernie Klatt 1,275 Accounts Receivable Marty Richey 1,690 31 No entry Ex. 9–13 a.

Ex. 9–13 (Concluded)

9-14 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Apr. 13 Allowance for Doubtful Accounts 8,450 Accounts Receivable—Dean Sheppard 8,450 May 15 Cash 500 Allowance for Doubtful Accounts 6,600 Accounts Receivable—Dan Pyle 7,100 July 27 Accounts Receivable—Dean Sheppard 8,450 Allowance for Doubtful Accounts 8,450 27 Cash 8,450 Accounts Receivable Dean Sheppard 8,450 Dec. 31 Allowance for Doubtful Accounts 13,510 Accounts Receivable Paul Chapman 2,225 Accounts Receivable—Duane DeRosa 3,550 Accounts Receivable Teresa Galloway 4,770 Accounts Receivable—Ernie Klatt 1,275 Accounts Receivable Marty Richey 1,690 31 Bad Debt Expense 28,335 Allowance for Doubtful Accounts 28,335 Uncollectible accounts estimate ($3,778,000 × 0.75% = $28,335).

c. Bad debt expense under: Allowance method………………………...……………………………………… $28,335 Direct write-off method ($8,450 + $6,600 – $8,450 + $13,510)…………… 20,110 Difference ($28,335 – $20,110)………………………………………………… $ 8,225 Shipway Company’s income would be $8,225 higher under the direct writeoff method than under the allowance method.

9-15 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables June 8 Bad Debt Expense 8,440 Accounts Receivable Kathy Quantel 8,440 Aug. 14 Cash 3,000 Bad Debt Expense 9,500 Accounts Receivable Rosalie Oakes 12,500 Oct. 16 Accounts Receivable Kathy Quantel 8,440 Bad Debt Expense 8,440 16 Cash 8,440 Accounts Receivable Kathy Quantel 8,440 Dec. 31 Bad Debt Expense 24,955 Accounts Receivable Wade Dolan 4,600 Accounts Receivable Greg Gagne 3,600 Accounts Receivable Amber Kisko 7,150 Accounts Receivable Shannon Poole 2,975 Accounts Receivable Niki Spence 6,630 31 No entry Ex. 9–14 a.

Ex. 9–14 (Continued) b.

9-16 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables June 8 Allowance for Doubtful Accounts 8,440 Accounts Receivable—Kathy Quantel 8,440 Aug. 14 Cash 3,000 Allowance for Doubtful Accounts 9,500 Accounts Receivable—Rosalie Oakes 12,500 Oct. 16 Accounts Receivable—Kathy Quantel 8,440 Allowance for Doubtful Accounts 8,440 16 Cash 8,440 Accounts Receivable Kathy Quantel 8,440 Dec. 31 Allowance for Doubtful Accounts 24,955 Accounts Receivable Wade Dolan 4,600 Accounts Receivable—Greg Gagne 3,600 Accounts Receivable Amber Kisko 7,150 Accounts Receivable—Shannon Poole 2,975 Accounts Receivable Niki Spence 6,630 31 Bad Debt Expense 45,545 Allowance for Doubtful Accounts 45,545 Uncollectible accounts estimate ($47,090 – $1,545).

Computations: Aging Class (Number of Days Past Due) Receivables Balance on December 31 Estimated Doubtful PercentAccountsAmount 0–30 days $320,000 1% $ 3,200 31–60 days 110,000 3% 3,300 61–90 days 24,000 10% 2,400 91–120 days 18,000 33% 5,940 More than 120 days 43,000 75% 32,250 Total receivables $515,000 $47,090 Estimated balance of allowance account from aging schedule…………………… $47,090 Unadjusted credit balance of allowance account*…………………………………… 1,545 Adjustment………………………………………………………………………………… $45,545 * $36,000 – $8,440 – $9,500 + $8,440 – $24,955 = $1,545

Ex. 9–14 (Concluded)

c. Bad debt expense under:

Rustic Tables’ income would be $11,090 higher under the direct write-off method than under the allowance method.

Ex. 9–15

$482,800 [$487,500 + $27,800 – ($3,250,000 × 1%)]

Ex. 9–16

a. $593,000 [$600,000 + $34,000 – ($4,100,000 × 1%)]

b. $11,700 ($32,500 – $27,800) + ($41,000 – $34,000)

Ex. 9–17

estimate ($5,250,000 × 0.75% = $39,375).

c. Net income would have been $9,375 higher in 2014 under the direct writeoff method, because bad debt expense would have been $9,375 higher under the allowance method ($39,375 expense under the allowance method vs. $30,000 expense under the direct write-off method).

9-17 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Bad Debt Expense 30,000 Accounts Receivable—Shawn Brooke 4,650 Accounts Receivable Eve Denton 5,180 Accounts Receivable—Art Malloy 11,050 Accounts Receivable—Cassie Yost 9,120 Allowance for Doubtful Accounts 30,000 Accounts Receivable Shawn Brooke 4,650 Accounts Receivable—Eve Denton 5,180 Accounts Receivable—Art Malloy 11,050 Accounts Receivable Cassie Yost 9,120 Bad Debt Expense 39,375 Allowance for Doubtful Accounts 39,375 Uncollectible

accounts

Allowance method………………………………………………………………… $45,545 Direct write-off method ($8,440

34,455 Difference………………………………………………………………………… $11,090

+ $9,500 – $8,440 + $24,955)……………

c. Net income would have been $14,650 lower in 2014 under the allowance method, because bad debt expense would have been $14,650 higher under the allowance method ($117,150 expense under the allowance method versus $102,500 expense under the direct write-off method).

Receivables Bad Debt Expense 102,500 Accounts Receivable—Kim Abel 21,550 Accounts Receivable—Lee Drake 33,925 Accounts Receivable—Jenny Green 27,565 Accounts Receivable—Mike Lamb 19,460 Allowance for Doubtful Accounts 102,500 Accounts Receivable Kim Abel 21,550 Accounts Receivable—Lee Drake 33,925 Accounts Receivable Jenny Green 27,565 Accounts Receivable Mike Lamb 19,460 Bad Debt Expense 117,150 Allowance for Doubtful Accounts 117,150 Uncollectible accounts estimate ($109,650 + $7,500).

9–18

CHAPTER 9

Ex.

Computations: Aging Class (Number of Days Past Due) Receivables Balance on December 31 Estimated Doubtful PercentAccountsAmount 0–30 days $ 715,000 1% $ 7,150 31–60 days 310,000 2% 6,200 61–90 days 102,000 15% 15,300 91–120 days 76,000 30% 22,800 More than 120 days 97,000 60% 58,200 Total receivables $1,300,000 $109,650 Unadjusted debit balance of Allowance for Doubtful Accounts ($102,500 – $95,000)……………………………………………………………………… $ 7,500 Estimated balance of Allowance for Doubtful Accounts from aging schedule…………………………………………………………………… 109,650 Adjustment………………………………………………………………………………… $117,150

CHAPTER 9 Receivables

Ex. 9–19

Ex. 9–20

a. June 18 (10 + 31 + 30 + 31 + 18)

b. $153,500 [($150,000 × 7% × 120/360) + $150,000]

c. (1) (2)

Ex. 9–21

1. Sale on account.

2. Cost of merchandise sold for the sale on account.

3. A sale return or allowance.

4. Cost of merchandise returned.

5. Note received from customer on account.

6. Note dishonored and charged maturity value of note to customer’s account receivable.

7. Payment received from customer for dishonored note plus interest earned after due date.

Notes Receivable 150,000 Accounts Rec.—Dry Creek Interior Decorators 150,000 Cash 153,500 Notes Receivable 150,000 Interest Revenue 3,500

9-19

Due Date

Apr. 22 Interest $1,100 [$55,000 × 0.08 × (90/360)]

May 8 300 [$36,000 × 0.05 × (60/360)] c. July 30 390 [$78,000 × 0.04 × (45/360)]

Nov. 3 161 [$13,800 × 0.07 × (60/360)] e. Jan. 29 1,160 [$58,000 × 0.06 × (120/360)]

9-20 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Ex. 9–22 2013 Dec. 16 Notes Receivable 21,000 Accounts Receivable Lake Shore Clothing & Bags Co. 21,000 31 Interest Receivable 70 Interest Revenue 70 Accrued interest ($21,000 × 0.08 × 15/360 = $70). 31 Interest Revenue 70 Income Summary 70 2014 Mar. 16 Cash 21,420 Notes Receivable 21,000 Interest Receivable 70 Interest Revenue 350 ($21,000 × 0.08 × 75/360). Ex. 9–23 July 12 Notes Receivable 240,000 Accounts Receivable—Accolade Co. 240,000 Nov. 9 Accounts Receivable—Accolade Co. 245,600 Notes Receivable 240,000 Interest Revenue 5,600 ($240,000 × 0.07 × 120/360). Dec. 9 Cash 247,442 Accounts Receivable—Accolade Co. 245,600 Interest Revenue 1,842 ($245,600 × 0.09 × 30/360).

1. The interest receivable should be reported separately as a current asset. It should not be deducted from notes receivable.

2. The allowance for doubtful accounts should be deducted from accounts receivable.

A corrected partial balance sheet would be as follows:

Receivables Ex. 9–24 Apr. 18 Notes Receivable 60,000 Accounts Receivable—GlennCross 60,000 30 Notes Receivable 42,000 Accounts Receivable—RhoniMelville 42,000 May 18 Accounts Receivable GlennCross 60,350 Notes Receivable 60,000 Interest Revenue 350 ($60,000 × 7% × 30/360). June 29 Accounts Receivable RhoniMelville 42,560 Notes Receivable 42,000 Interest Revenue 560 ($42,000 × 8% × 60/360). Aug. 16 Cash 61,557 Accounts Receivable—GlennCross 60,350 Interest Revenue 1,207 ($60,350 × 8% × 90/360). Oct. 22 Allowance for Doubtful Accounts 42,560 Accounts Receivable RhoniMelville 42,560

CHAPTER 9

Ex. 9–25

NAPA VINO COMPANY Balance Sheet December 31, 2014 Assets Current assets: Cash $ 78,500 Notes receivable 300,000 Accounts receivable $1,200,000 Less allowance for doubtful accounts 11,500 1,188,500 Interest receivable 4,500

CHAPTER 9 Receivables

Ex. 9–26

a. and b.

sales……………………………

Average accts. receivable………

c. The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by increasing from 9.4 to 10.5, a favorable trend. The days’ sales in receivables also indicates an increase in the efficiency of collecting accounts receivable by decreasing from 39.0 to 34.8, which is a favorable trend. However, before reaching a final conclusion, the ratios should be compared with industry averages and similar firms.

Ex. 9–27

a. and b.

Net sales……………………………

Accounts receivable……………… Average accts. receivable………

Accts. receivable turnover……… Average daily sales……………… Days’ sales in receivables………

Net

Year 2 Year 1 $5,660,300 $4,978,900 Accounts

Accts. receivable turnover……… $592,700 $539,450 [($592,700 + $486,200) ÷ 2] 10.5 $486,200 $531,450 [($486,200 + $576,700) ÷ 2] 9.4 ($5,660,300 ÷ $539,450) ($4,978,900 ÷ $531,450) Average daily sales……………… Days’ sales in receivables……… $15,507.7 ($5,660,300 ÷ 365 days) 34.8 $13,640.8 ($4,978,900 ÷ 365 days) 39.0 ($539,450 ÷ $15,507.7) ($531,450 ÷ $13,640.8)

receivable………………

Year 2 Year 1 $10,706,588 $10,494,983 $1,265,032 $1,045,338 $1,155,185 $1,108,567.5 [($1,265,032 + $1,045,338) ÷ 2] [($1,045,338 + $1,171,797) ÷ 2] 9.3 9.5 ($10,706,588 ÷ $1,155,185) ($10,494,983 ÷ $1,108,567.5) $29,333.1 $28,753.4 ($10,706,588 ÷ 365 days) ($10,494,983 ÷ 365 days) 39.4 38.6 ($1,155,185 ÷ $29,333.1) ($1,108,567.5 ÷ $28,753.4)

CHAPTER 9 Receivables

c. The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by decreasing from 9.5 to 9.3, an unfavorable trend. The number of days’ sales in receivables increased from 38.6 to 39.4 days, also indicating an unfavorable trend in collections of receivables. These unfavorable trends are consistent with the economic downturn that occurred worldwide in Year 1 and Year 2. However, before reaching a final conclusion, both ratios should be compared with those of past years, industry averages, and similar firms.

c. The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by increasing from 30.7 to 37.3, a favorable trend. The days’ sales in receivables indicates an increase in the efficiency of collecting accounts receivable by decreasing from 11.9 to 9.8, also indicating a favorable trend. Before reaching a conclusion, however, the ratios should be compared with industry averages and similar firms.

and b. Year 2 Year 1 Net sales………………………… $9,613 $8,632 Accounts receivable………… $ 267 $ 249 Average accts. receivable…… $ 258 [($267 + $249) ÷ 2] $ 281 [($249 + $313) ÷ 2] Accts. receivable turnover…… 37.3 ($9,613 ÷ $258) 30.7 ($8,632 ÷ $281) Average daily sales…………… $26.3 ($9,613 ÷ 365 days) $23.6 ($8,632 ÷ 365 days) Days’ sales in receivables…… 9.8 ($258 ÷ $26.3) 11.9 ($281 ÷ $23.6)

CHAPTER 9 Receivables Ex. 9–28 a.

CHAPTER 9 Receivables

Ex. 9–29

a. The average accounts receivable turnover ratios are as follows:

The Limited Brands Inc.: 34.0 [(37.3 + 30.7) ÷

2] H.J. Heinz Company: 9.4 [(9.3 + 9.5) ÷ 2]

Note: For computations of the individual ratios, see Ex. 9–27 and Ex. 9–28.

b. The Limited Brands has the higher average accounts receivable turnover ratio.

c. The Limited Brands operates a specialty retail chain of stores that sell directly to individual consumers. Many of these consumers (retail customers) pay with MasterCards or VISAs that are recorded as cash sales. In contrast, H.J. Heinz manufactures processed foods that are sold to food wholesalers, grocery store chains, and other food distributors that eventually sell Heinz products to individual consumers. Accordingly, because of the extended distribution chain, we would expect Heinz to have more accounts receivable than The Limited Brands. In addition, we would expect Heinz’s business customers to take a longer period to pay their receivables. Thus, we would expect Heinz’s average accounts receivable turnover ratio to be lower than The Limited Brands, as shown in (a).

9-26 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables 20 Feb. 8 Cash 7,200 Allowance for Doubtful Accounts 10,800 Accounts Receivable DeCoyCo. 18,000 May 27 Accounts Receivable—SethNelsen 7,350 Allowance for Doubtful Accounts 7,350 27 Cash 7,350 Accounts Receivable SethNelsen 7,350 Aug. 13 Allowance for Doubtful Accounts 6,400 Accounts Receivable—KatTracks Co. 6,400 Oct. 31 Accounts Receivable—CrawfordCo. 3,880 Allowance for Doubtful Accounts 3,880 31 Cash 3,880 Accounts Receivable—CrawfordCo. 3,880 Dec. 31 Allowance for Doubtful Accounts 23,200 Accounts Receivable—NewbauerCo. 7,190 Accounts Receivable Bonneville Co. 5,500 Accounts Receivable CrowDistributors 9,400 Accounts Receivable—FiberOptics 1,110 31 Bad Debt Expense 38,870 Allowance for Doubtful Accounts 38,870 Uncollectible accounts estimate ($35,700 + $3,170).

Prob. 9–1A 2.

PROBLEMS

CHAPTER 9 Receivables

Prob. 9–1A

(Concluded)

1. and 2. Allowance for Doubtful Accounts

3. $1,749,300 ($1,785,000 –$35,700)

4. a. $45,500 ($18,200,000 × 0.0025)

b. $42,330 ($45,500 –$3,170)

c. $1,742,670 ($1,785,000 – $42,330)

Feb. 8 10,800 Jan. 1 Balance 26,000 Aug. 13 6,400 May 27 7,350 Dec. 31 23,200 Oct. 31 3,880 Dec. 31 Unadjusted Balance 3,170 Dec. 31 Adjusting Entry 38,870 Dec. 31 Adj. Balance 35,700 Bad Debt Expense Dec. 31 Adjusting Entry 38,870

CHAPTER 9 Receivables

Prob. 9–2A

9-28

1. Customer Due Date Number of Days Past Due Adams Sports & Flies May 22, 2013 223 days (9 + 30 + 31 + 31 + 30 + 31 + 30 + 31) Blue Dun Flies Oct. 10, 2013 82 days (21 + 30 + 31) Cicada Fish Co. Sept. 29, 2013 93 days (1 + 31 + 30 + 31) Deschutes Sports Oct. 20, 2013 72 days (11 + 30 + 31) Green River Sports Nov. 7, 2013 54 days (23 + 31) Smith River Co. Nov. 28, 2013 33 days (2 + 31) Western Trout Company Dec. 7, 2013 24 days Wolfe Sports Jan. 20, 2014 Not past due 2. and 3. Aging of Receivables Schedule December 31, 2013 Customer Balance Not Days Past Due Past 1–30 31–60 61–90 91–120 Over Due 120 AAA Outfitters 20,000 20,000 Brown Trout Fly Shop 7,500 7,500 Zigs Fish Adventures 4,000 4,000 Subtotals 1,300,000 750,000 290,000 120,000 40,000 20,000 80,000 Adams Sports & Flies 5,000 5,000 Blue Dun Flies 4,900 4,900 Cicada Fish Co. 8,400 8,400 Deschutes Sports 7,000 7,000 Green River Sports 3,500 3,500 Smith River Co. 2,400 2,400 Western Trout Company 6,800 6,800 Wolfe Sports 4,400 4,400 Totals 1,342,400 754,400 296,800 125,900 51,900 28,400 85,000 Percentage uncollectible 1% 2% 10% 30% 40% 80% Estimate of uncollectible accounts 121,000 7,544 5,936 12,590 15,570 11,360 68,000

Prob. 9–2A (Concluded)

5. On the balance sheet, assets would be overstated by $124,600, since the allowance for doubtful accounts would be understated by $124,600. In addition, the owner’s capital account would be overstated by $124,600, since bad debt expense would be understated and net income overstated by $124,600 on the income statement.

9-29 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Bad Debt Expense 124,600 Allowance for Doubtful Accounts 124,600 Uncollectible accounts estimate ($121,000 + $3,600).

Bad Debt Expense

2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 1% of sales. The total write-off of receivables originating in the first year amounted to $8,500 ($4,500 + $3,000 + $1,000), as compared with bad debt expense, based on the percentage of sales, of $9,000 ($900,000 × 1%). For the second year, the comparable amounts were $11,800 ($6,600 + $3,700 + $1,500) and $12,500 ($1,250,000 × 1%).

CHAPTER 9 Receivables

Year Expense Actually Reported Expense Based on Estimate Increase (Decrease ) in Amount of Expense Balance of Allowance Account, End of Year 1st $ 4,500 $ 9,000 $4,500 $ 4,500 2nd 9,600 12,500 2,900 7,400 3rd 12,800 15,000 2,200 9,600 4th 16,550 22,000 5,450 15,050

Prob. 9–3A 1.

Nov. 17 Accounts Receivable 42,840 Notes Receivable 42,000 Interest Revenue 840 Dec. 31 Interest Receivable 154 Interest Revenue 154 Accrued interest. $27,000 × 6% × 32/360 = $144 $72,000 × 5% × 1/360 10 Total $154 Jan. 28 Cash 27,270 Notes Receivable 27,000 Interest Receivable 144 Interest Revenue 126 ($27,000 × 6% × 28/360). 29 Cash 72,300 Notes Receivable 72,000 Interest Receivable 10 Interest Revenue 290 ($72,000 × 5% × 29/360). Prob. 9–4A 1. Note 1. 2. (a) Due Date Apr. 20 June 22 $500 360 (b) Interest Due at Maturity ($80,000 × 45/360 × 5%) ($24,000 × 60/360 × 9%) 3. Nov. 17 840 ($42,000 × 120/360 × 6%) 4. Dec. 5 945 ($54,000 × 90/360 × 7%) 5. Jan. 28 270 ($27,000 × 60/360 × 6%) 2. 6. Jan. 29 300 ($72,000 × 30/360 × 5%) 3. 4.

CHAPTER 9 Receivables

Prob. 9–5A Apr. 10 Notes Receivable 144,000 Accounts Receivable 144,000 May 15 Notes Receivable 270,000 Accounts Receivable 270,000 June 9 Cash 145,200 Notes Receivable 144,000 Interest Revenue 1,200 Aug. 22 Notes Receivable 150,000 Accounts Receivable 150,000 Sept. 12 Cash 276,300 Notes Receivable 270,000 Interest Revenue 6,300 30 Notes Receivable 210,000 Accounts Receivable 210,000 Oct. 6 Cash 150,750 Notes Receivable 150,000 Interest Revenue 750 18 Notes Receivable 120,000 Accounts Receivable 120,000 Nov. 29 Cash 212,800 Notes Receivable 210,000 Interest Revenue 2,800 Dec. 17 Cash 121,000 Notes Receivable 120,000 Interest Revenue 1,000

Prob. 9–6A Jan. 3 Notes Receivable 18,000 Cash 18,000 Feb. 10 Accounts Receivable Bradford & Co. 24,000 Sales 24,000 10 Cost of Merchandise Sold 14,400 Merchandise Inventory 14,400 13 Accounts Receivable Dry Creek Co. 60,000 Sales 60,000 13 Cost of Merchandise Sold 54,000 Merchandise Inventory 54,000 Mar. 12 Notes Receivable 24,000 Accounts Receivable Bradford & Co. 24,000 14 Notes Receivable 60,000 Accounts Receivable Dry Creek Co. 60,000 Apr. 3 Notes Receivable 18,000 Cash 360 Notes Receivable 18,000 Interest Revenue 360 ($18,000 × 8% × 90/360). May 11 Cash 24,280 Notes Receivable 24,000 Interest Revenue 280 ($24,000 × 7% × 60/360). 13 Accounts Receivable—Dry Creek Co. 60,900 Notes Receivable 60,000 Interest Revenue 900 ($60,000 × 9% × 60/360). July 12 Cash 62,118 Accounts Receivable—Dry Creek Co. 60,900 Interest Revenue 1,218 ($60,900 × 12% × 60/360).

CHAPTER 9 Receivables

Aug. 1 Cash 18,540 Notes Receivable 18,000 Interest Revenue 540 ($18,000 × 9% × 120/360). Oct. 5 Accounts Receivable Halloran Co. 13,500 Sales 13,500 5 Cost of Merchandise Sold 8,100 Merchandise Inventory 8,100 15 Cash 13,230 Sales Discounts 270 Accounts Receivable Halloran Co. 13,500

Prob. 9–6A (Concluded)

9-35 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables 20 Jan. 19 Accounts Receivable—Arlene Gurley 2,660 Allowance for Doubtful Accounts 2,660 19 Cash 2,660 Accounts Receivable Arlene Gurley 2,660 Apr. 3 Allowance for Doubtful Accounts 12,750 Accounts Receivable Premier GS Co. 12,750 July 16 Cash 5,500 Allowance for Doubtful Accounts 16,500 Accounts Receivable Hayden Co. 22,000 Nov. 23 Accounts Receivable Harry Carr 4,000 Allowance for Doubtful Accounts 4,000 23 Cash 4,000 Accounts Receivable Harry Carr 4,000 Dec. 31 Allowance for Doubtful Accounts 24,000 Accounts Receivable Cavey Co. 3,300 Accounts Receivable Fogle Co. 8,100 Accounts Receivable Lake Furniture 11,400 Accounts Receivable Melinda Shryer 1,200 31 Bad Debt Expense 56,590 Allowance for Doubtful Accounts 56,590 Uncollectible accounts estimate ($60,000 – $3,410). Prob. 9–1B 2.

CHAPTER 9 Receivables

Prob. 9–1B (Concluded) 1. and 2.

c. $2,267,590 ($2,350,000 – $82,410)

Allowance for Doubtful Accounts Apr. 3 12,750 Jan. 1 Balance 50,000 July 16 16,500 Jan. 19 2,660 Dec. 31 24,000 Nov. 23 4,000 Dec. 31 Unadjusted Balance 3,410 Dec. 31 Adjusting Entry 56,590 Dec. 31 Adjusted Balance 60,000 Bad Debt Expense Dec. 31 Adjusting Entry 56,590

$2,290,000 ($2,350,000 – $60,000)

$79,000 ($15,800,000 × 0.005)

4. a.

$82,410 ($79,000 + $3,410)

CHAPTER 9 Receivables

Prob. 9–2B

1. Customer Due Date Number of Days Past Due Arcade Beauty Aug. 17, 2013 136 days (14 + 30 + 31 + 30 + 31) Creative Images Oct. 30, 2013 62 days (1 + 30 + 31) Excel Hair Products July 3, 2013 181 days (28 + 31 + 30 + 31 + 30 + 31) First Class Hair Care Sept. 8, 2013 114 days (22 + 31 + 30 + 31) Golden Images Nov. 23, 2013 38 days (7 + 31) Oh That Hair Nov. 29, 2013 32 days (1 + 31) One Stop Hair Designs Dec. 7, 2013 24 days Visions Hair & Nail Jan. 11, 2014 Not past due 2. and 3. Aging of Receivables Schedule December 31, 2013 Customer Balance Not Days Past Due Past 1–30 31–60 61–90 91–120 Over Due 120 ABC Beauty 15,000 15,000 Angel Wigs 8,000 8,000 Zodiac Beauty 3,000 3,000 Subtotals 875,000 415,000 210,000 112,000 55,000 18,000 65,000 Arcade Beauty 10,000 10,000 Creative Images 8,500 8,500 Excel Hair Products 7,500 7,500 First Class Hair Care 6,600 6,600 Golden Images 3,600 3,600 Oh That Hair 1,400 1,400 One Stop Hair Designs 4,000 4,000 Visions Hair & Nail 9,000 9,000 Totals 925,600 424,000 214,000 117,000 63,500 24,600 82,500 Percentage uncollectible 1% 4% 16% 25% 40% 80% Estimate of uncollectible accounts 123,235 4,240 8,560 18,720 15,875 9,840 66,000

Prob. 9–2B (Concluded)

5. On the balance sheet, assets would be overstated by $115,860, since the allowance for doubtful accounts would be understated by $115,860. In addition, the owner’s capital account would be overstated by $115,860, since bad debt expense would be understated and net income overstated by $115,860 on the income statement.

9-38 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Receivables Bad Debt Expense 115,860 Allowance for Doubtful Accounts 115,860 Uncollectible accounts estimate ($123,235 – $7,375).

Bad Debt Expense

2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 1/4% of sales. The total write-off of receivables originating in the first year amounted to $30,600 ($18,000 + $9,000 + $3,600), as compared with bad debt expense based on the percentage of sales, of $31,250 ($12,500,000 × 0.0025). For the second year, the comparable amounts were $35,600 ($21,200 + $9,300 + $5,100) and $37,000 ($14,800,000 × 0.0025).

CHAPTER 9 Receivables

Year Expense Actually Reported Expense Based on Estimate Increase (Decrease ) in Amount of Expense Balance of Allowance Account, End of Year 1st $18,000 $31,250 $13,250 $13,250 2nd 30,200 37,000 6,800 20,050 3rd 39,900 45,000 5,100 25,150 4th 52,600 60,000 7,400 32,550

Prob. 9–3B 1.

CHAPTER 9 Receivables

Oct. 10 Accounts Receivable 48,600 Notes Receivable 48,000 Interest Revenue 600 Dec. 31 Interest Receivable 452 Interest Revenue 452 Accrued interest. $36,000 × 8% × 46/360 = $368 $24,000 × 6% × 21/360 84 Total $452 Jan. 14 Cash 36,480 Notes Receivable 36,000 Interest Receivable 368 Interest Revenue 112 ($36,000 × 8% × 14/360). Feb. 8 Cash 24,240 Notes Receivable 24,000 Interest Receivable 84 Interest Revenue 156 ($24,000 × 6% × 39/360).

Note

Date

1. Feb. 13 $110 ($33,000 × 30/360 × 4%) 2. Apr. 23 525 ($60,000 × 45/360 × 7%) 3. Oct. 10 600 ($48,000 × 90/360 × 5%) 4. Nov. 6 200 ($16,000 × 75/360 × 6%) 5. Jan. 14 480 ($36,000 × 60/360 × 8%) 2. 6. Feb. 8 240 ($24,000 × 60/360 × 6%)

Prob. 9–4B 1.

(a) Due

(b) Interest Due at Maturity

3. 4.

CHAPTER 9 Receivables

Prob. 9–5B Mar. 8 Notes Receivable 33,000 Accounts Receivable 33,000 31 Notes Receivable 80,000 Accounts Receivable 80,000 May 7 Cash 33,275 Notes Receivable 33,000 Interest Revenue 275 16 Notes Receivable 72,000 Accounts Receivable 72,000 June 11 Notes Receivable 36,000 Accounts Receivable 36,000 29 Cash 81,400 Notes Receivable 80,000 Interest Revenue 1,400 July 26 Cash 36,270 Notes Receivable 36,000 Interest Revenue 270 Aug. 4 Notes Receivable 48,000 Accounts Receivable 48,000 14 Cash 73,260 Notes Receivable 72,000 Interest Revenue 1,260 Dec. 2 Cash 49,440 Notes Receivable 48,000 Interest Revenue 1,440

Prob. 9–6B 20 Jan. 21 Accounts Receivable Black Tie Co. 28,000 Sales 28,000 21 Cost of Merchandise Sold 16,800 Merchandise Inventory 16,800 Mar. 18 Notes Receivable 28,000 Accounts Receivable Black Tie Co. 28,000 May 17 Cash 28,280 Notes Receivable 28,000 Interest Revenue 280 ($28,000 × 6% × 60/360). June 15 Accounts Receivable Pioneer Co. 17,700 Sales 17,700 15 Cost of Merchandise Sold 10,600 Merchandise Inventory 10,600 21 Notes Receivable 18,000 Cash 18,000 25 Cash 17,523 Sales Discounts 177 Accounts Receivable Pioneer Co. 17,700 July 21 Notes Receivable 18,000 Cash 120 Notes Receivable 18,000 Interest Revenue 120 ($18,000 × 8% × 30/360). Sept. 19 Cash 18,270 Notes Receivable 18,000 Interest Revenue 270 ($18,000 × 9% × 60/360). 22 Accounts Receivable—Wycoff Co. 20,000 Sales 20,000

CHAPTER 9 Receivables

Prob. 9–6B (Concluded)

Sept. 22 Cost of Merchandise Sold 12,000 Merchandise Inventory 12,000 Oct. 14 Notes Receivable 20,000 Accounts Receivable Wycoff Co. 20,000 Nov. 13 Accounts Receivable Wycoff Co. 20,100 Notes Receivable 20,000 Interest Revenue 100 ($20,000 × 6% × 30/360). Dec. 28 Cash 20,301 Accounts Receivable Wycoff Co. 20,100 Interest Revenue 201 ($20,100 × 8% × 45/360).

CHAPTER 9 Receivables

CASES & PROJECTS

CP 9–1

By computing interest using a 365-day year for depository accounts (liabilities), Bev is minimizing interest expense to the bank. By computing interest using a 360-day year for loans (assets), Bev is maximizing interest revenue to the bank. However, federal legislation (Truth in Lending Act) requires banks to compute interest on a 365-day year. Hence, Bev is behaving in an unprofessional manner.

2. a. The estimate of 1/2 of 1% of credit sales may be too large, since the allowance for doubtful accounts has steadily increased each year. The increasing balance of the allowance for doubtful accounts may also be due to the failure to write off a large number of uncollectible accounts. These possibilities could be evaluated by examining the accounts in the accounts receivable subsidiary ledger for collectibility and comparing the result with the balance in the allowance for doubtful accounts.

Note to Instructors: Since the allowance for doubtful accounts increased by 188% [($14,400 – $5,000) ÷ $5,000], while sales have increased by 27.5% [($5,100,000 –$4,000,000) ÷ $4,000,000], the increase cannot be explained by an expanding volume of sales.

a. b. Addition to Allowance Accounts Written Year for Doubtful Accounts Off During Year 2011 $20,000 $15,000 ($20,000 – $5,000) 2012 22,000 18,750 ($5,000 + $22,000 – $8,250) 2013 24,000 22,050 ($8,250 + $24,000 – $10,200) 2014 25,500 21,300 ($10,200 + $25,500 –$14,400)

CP 9–2 1.

CHAPTER 9 Receivables

CP 9–2 (Concluded)

b. The balance of Allowance for Doubtful Accounts that should exist at December 31, 2014, can only be determined after all attempts have been made to collect the receivables on hand at December 31, 2014. However, the account balances at December 31, 2014, could be analyzed, perhaps using an aging schedule, to determine a reasonable amount of allowance and to determine accounts that should be written off. Also, past write-offs of uncollectible accounts could be analyzed in depth in order to develop a reasonable percentage for future adjusting entries, based on past history. Caution, however, must be exercised in using historical percentages. Specifically, inquiries should be made to determine whether any significant changes between prior years and the current year may have occurred, which might reduce the accuracy of the historical data. For example, a recent change in credit-granting policies or changes in the general economy (entering a recessionary period, for example) could reduce the usefulness of analyzing historical data.

Based on the preceding analyses, a recommendation to decrease the annual rate charged as an expense may be in order (perhaps Xtreme Co. is experiencing a lower rate of uncollectibles than is the industry average), or perhaps a change to the “estimate based on analysis of receivables” method may be appropriate. CP

3. The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by decreasing from 25.6 to 23.0, an unfavorable trend. The days’ sales in receivables increased from 14.3 days to 15.9, an unfavorable trend. Thus, based on (1) and (2), Best Buy has decreased its efficiency in the collection of receivables.

2. Year 2 Year 1 Net sales………………………… $50,272 $49,694 Accounts receivable………… $2,348 $2,020 Average accts. receivable…… $2,184.0 [($2,348 + $2,020) ÷ 2] $1,944.0 [($2,020 + $1,868) ÷ 2] Accts. receivable turnover…… 23.0 ($50,272 ÷ $2,184.0) 25.6 ($49,694 ÷ $1,944.0) Average daily sales…………… $137.7 ($50,272 ÷ 365) $136.1 ($49,694 ÷ 365) Days’ sales in receivables…… 15.9 ($2,184.0 ÷ $137.7) 14.3 ($1,944.0 ÷ $136.1)

9–3 1. and