Thursday
October 23, 2014

Homework Help: finance

Posted by John on Friday, October 13, 2006 at 2:44am.

a financial mgr is considering operating a lock box. she forecast that 400 payments a day will be made to the lockbox with the average payment being $2,000. the banks charge for operating the lockbox is .40 cents per check. the interest rate is .025 per day.

a. if the lock box saves tow days in collection float, is it a worthwhile to adopt the system?

b. what minimum reduction in the time limit to collect and process each check is needed to justify use of the lock box?
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I really need help with all of the follow section exercise 7 working 7 thru 17, please

ercise 7-7
Exercise 7-8
(continued)
Account
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,900
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 (debit balance)
The company has not yet recorded any bad debt expense for 2006.
Determine the amount of bad debt expense to be recognized by Stardust Company for
2006, assuming the following independent situations:
1. An aging accounts receivable analysis indicates that probable uncollectible accounts receivable
at year-end amount to $4,500.
2. Company policy is to maintain a provision for uncollectible accounts receivable equal to 3%
of outstanding accounts receivable.
3. Company policy is to estimate uncollectible accounts receivable as equal to 0.5% of the previous
year’s annual sales, which were $200,000.
Accounting for Bad Debts
The following data were associated with the accounts receivable and uncollectible accounts of
Julia Jay, Inc., during 2006:
a. The opening credit balance in Allowance for Bad Debts was $600,000 at January 1, 2006.
b. During 2006, the company realized that specific accounts receivable totaling $630,000 had
gone bad and had been written off.
c. An account receivable of $35,000 was collected during 2006. This account had previously
been written off as a bad debt in 2005.
d. The company decided that Allowance for Bad Debts would be $650,000 at the end of
2006.
1. Prepare journal entries to show how these events would be recognized in the accounting
system using:
a. The direct write-off method.
b. The allowance method.
2. Discuss the advantages and disadvantages of each method with respect to the matching
principle.
Accounting for Uncollectible Accounts Receivable
Dodge Company had the following information relating to its accounts receivable at December
31, 2005, and for the year ended December 31, 2006:
Accounts receivable balance at 12/31/05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900,000
Allowance for bad debts at 12/31/05 (credit balance) . . . . . . . . . . . . . . . . . . . . . . . 50,000
Gross sales during 2006 (all credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000
Collections from customers during 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500,000
Accounts written off as uncollectible during 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Estimated uncollectible receivables at 12/31/06 . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
Dodge Company uses the percentage of receivables method to estimate bad debt expense.
1. At December 31, 2006, what is the balance of Dodge Company’s Allowance for Bad Debts?
What is the bad debt expense for 2006?
2. At December 31, 2006, what is the balance of Dodge Company’s gross accounts receivable?
Aging of Accounts Receivable
Madariaga Company’s accounts receivable reveal the following balances:
328 Part 2 E O C Operating Activities
Exercise 7-9
Exercise 7-10
Exercise 7-11
Age of Accounts Receivable Balance
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $840,000
1–30 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,000
31–60 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
61–90 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
91–120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000
The credit balance in Allowance for Bad Debts is now $38,000. After a thorough analysis of
its collection history, the company estimates that the following percentages of receivables will
eventually prove uncollectible:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5%
1–30 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5
31–60 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0
61–90 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.0
91–120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.0
Prepare an aging schedule for the accounts receivable, and give the journal entry for recording
the necessary change in the allowance for bad debts account.
Aging of Accounts Receivable
The following aging of accounts receivable is for Harry Company at the end of its first year of
business:
Aging of Accounts Receivable
December 31, 2006
Less Than 30 31 to 60 61 to 90 Over 90
Overall Days Days Days Days
Ken Nelson $ 10,000 $ 8,000 $1,000 $1,000
Elaine Anderson 40,000 31,000 $ 4,000 5,000
Bryan Crist 12,000 3,000 4,000 2,000 3,000
Renee Warner 60,000 50,000 10,000
Nelson Hsia 16,000 10,000 6,000
Stella Valerio 25,000 20,000 5,000
Totals $163,000 $122,000 $24,000 $8,000 $9,000
Harry Company has collected the following bad debt information from a consultant familiar
with Harry’s industry:
Percentage
Ultimately
Age of Account Uncollectible
Less than 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
31–60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
61–90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Over 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Selling a Product or a Service E O C Chapter 7 329
Exercise 7-12
(continued)
1. Compute the appropriate Allowance for Bad Debts as of December 31, 2006.
2. Make the journal entry required to record this allowance. Remember that, since this is
Harry’s first year of operations, the allowance account at the beginning of the year was $0.
3. What is Harry’s net accounts receivable balance as of December 31, 2006?
Direct Write-Off versus Allowance Method
The vice president for Tres Corporation provides you with the following list of accounts receivable
written off in the current year. (These accounts were recognized as bad debt expense
at the time they were written off; i.e., the company was using the direct write-off method.)
Date Customer Amount
March 30 Rasmussen Company $12,000
July 31 Dodge Company 7,500
September 30 Larsen Company 10,000
December 31 Peterson Company 12,000
Tres Corporation’s sales are all on a n/30 credit basis. Sales for the current year total $3,600,000,
and analysis has indicated that uncollectible receivable losses historically approximate 1.5% of
sales.
1. Do you agree or disagree with Tres Corporation’s policy concerning recognition of bad debt
expense? Why or why not?
2. If Tres were to use the percentage of sales method for recording bad debt expense, by how
much would income before income taxes change for the current year?
Accounting for Uncollectible Receivables—Percentage of Sales Method
The trial balance of Marchant’s Sporting House, Inc., shows a $150,000 outstanding balance
in Accounts Receivable at the end of 2005. During 2006, 80% of the total credit sales of
$3,500,000 was collected, and no receivables were written off as uncollectible. The company
estimated that 2.0% of the credit sales would be uncollectible. During 2007, the account of
Prior Sybrowsky, who owed $4,200, was judged to be uncollectible and was written off. At the
end of 2007, the amount previously written off was collected in full from Mr. Sybrowsky.
Prepare the necessary journal entries for recording all the preceding transactions relating to
uncollectibles on the books of Marchant’s Sporting House, Inc.
Comparing the Percentage of Sales and the Percentage of
Receivables Methods
Keefer Company uses the percentage of sales method for computing bad debt expense. As of
January 1, 2006, the balance of Allowance for Bad Debts was $200,000. Write-offs of uncollectible
accounts during 2006 totaled $240,000. Reported bad debt expense for 2006 was
$320,000, computed using the percentage of sales method.
Keith & Harding, the auditors of Keefer’s financial statements, compiled an aging accounts
receivable analysis of Keefer’s accounts at the end of 2006. This analysis has led Keith & Harding
to estimate that, of the accounts receivable Keefer has as of the end of 2006, $700,000 will
ultimately prove to be uncollectible.
Given their analysis, Keith & Harding, the auditors, think that Keefer should make an adjustment
to its 2006 financial statements. What adjusting journal entry should Keith & Harding
suggest?
Ratio Analysis
The following are summary financial data for Parker Enterprises, Inc., and Boulder, Inc., for
three recent years:
330 Part 2 E O C Operating Activities
Exercise 7-13
Exercise 7-14
Exercise 7-15
Exercise 7-16
Year 3 Year 2 Year 1
Net sales (in millions):
Parker Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,700 $ 3,875 $ 3,882
Boulder, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,825 16,549 15,242
Net accounts receivable (in millions):
Parker Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 1,800 1,725
Boulder, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525 5,800 6,205
1. Using the above data, compute the accounts receivable turnover and average collection period
for each company for years 2 and 3.
2. Which company appears to have the better credit management policy?
Assessing How Well Companies Manage Their Receivables
Assume that Hickory Company has the following data related to its accounts receivable:
2005 2006
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,425,000 $1,650,000
Net receivables:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 333,500
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000 375,000
Use these data to compute accounts receivable turnover ratios and average collection periods
for 2005 and 2006. Based on your analysis, is Hickory Company managing its receivables
better or worse in 2006 than it did in




Working Capital Management. Indicate how each of the following six different
transactions that Dynamic Mattress might make would affect (i) cash and (ii) net working
capital:
a.

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