Question

Exercise 7-4

Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of $2,355 per month, has just purchased a new Acura. You decide to test the accuracy of the accounts receivable balance of $128,740 as shown in the ledger.

The following information is available for your first year in business.

(1)		Collections from customers		$310,860
(2)		Merchandise purchased		502,400
(3)		Ending merchandise inventory		141,300
(4)		Goods are marked to sell at 40% above cost

Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on account.

The ending balance of accounts receivable from customers		$
Apparent shortage		$

Answer 1

Solution:

Cost of goods sold = Merchandise purchased - Ending inventory = $502,400 - $141,300 = $361,100

Sales revenue = Cost of goods sold * 140% = $361,100 * 140% = $505,540

The ending balance of accounts receivable from customers = Sales revenue - Collection from customers

= $505,540 - $310,860 = $194,680

Apparent shortage = $194,680 - $128,740 = $65,940