Chapter 7: Question 22Q (page 362)
What is the accounts receivable turnover, and what type of information does it provide?
The receivables turnover ratio is calculated using the net sales and the average accounts receivables of the company toevaluate the liquidity of the business entity.
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(Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of \(3,969.85 on June 30, 2017. The bank statement as of that date showed a balance of \)4,150. Upon comparing the statement with the cash records, the following facts were determined.
1. There were bank service charges for June of \(25.
2. A bank memo stated that Bao Dai’s note for \)1,200 and interest of \(36 had been collected on June 29, and the bank had made a charge of \)5.50 on the collection. (No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the bank for collection.)
3. Receipts for June 30 for \(3,390 were not deposited until July 2.
4. Checks outstanding on June 30 totaled \)2,136.05.
5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to \(253.20 on June 29.
6. A customer’s check for \)90 (as payment on the customer’s Accounts Receivable) had been entered as \(60 in the cash receipts journal by Aguilar on June 15.
7. Check no. 742 in the amount of \)491 had been entered in the cash journal as \(419, and check no. 747 in the amount of \)58.20 had been entered as $582. Both checks had been issued to pay for purchases and were payments on Aguilar’s Accounts Payable.
Instructions
(a) Prepare a bank reconciliation dated June 30, 2017, proceeding to a correct cash balance.
(b) Prepare any entries necessary to make the books correct and complete.
On January 1, 2017, Lombard Co. sells property for which it had paid \(690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for \)1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?
Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable \(789,000. This balance consists of the following items:
Due from regular customer | \)523,000 |
Refund receivable on prior year’s income taxes (an established claim) | 15,500 |
Travel advance to employees | 22,000 |
Loan to wholly owned subsidiary | 45,500 |
Advance to creditor for goods ordered | 61,000 |
Accounts receivables assigned security for loans payable | 75,000 |
Notes receivable past due plus interest on these notes | 47,000 |
Total | $789,000 |
Illustrate how these items should be shown in the balance sheet as of December 31.
Indicate three reasons why a company might sell its receivables to another company.
Roeher Company sold \(9,000 of its specialty shelving to Elkins Office Supply Co. on account. Prepare the entries when (a) Roeher makes the sale, (b) Roeher grants an allowance of \)700 when some of the shelving does not meet exact specifications but still could be sold by Elkins, and (c) at year-end; Roeher estimates that an additional $200 in allowances will be granted to Elkins.
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