Question

January 2 Provide services to customers for cash, $43, 100. January 6 Provide services to customers on account, $80, 400. January 15 Write off accounts receivable as uncollectible, $2,000. January 20 Pay cash for salaries, $32, 200. January 22 Receive cash on accounts receivable, $78,000. January 25 Pay cash on accounts payable, $6,300. January 30 Pay cash for utilities during January, $14,500. The following information is available on January 31, 2021. a. The company estimates future uncollectible accounts. The company determines $5,800 of accounts receivable on January 31 are past due, and 20% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.) b. Supplies at the end of January total $650. c. Accrued interest revenue on notes receivable for January. Interest is expected to be received each December 31. d. Unpaid salaries at the end of January are $34,300. Requirement General Journal General Ledger Trial Balance Income Statement Balance Sheet Analysis Enter your Accounts Receivable turnover value in 1 decimal place and Ratio of Allowance for Uncollectible Accounts in Whole number. Analyze how well 3D Family Fireworks manages its receivables (a) Calculate the receivables turnover ratio for the month of January (Hint: For the numerator, use total services provided to customers on account). If the industry average of the receivables turnover ratios for the month of January is 4.1 times, is the company collecting cash from customers more or less efficiently than other companies in the same industry? Accounts Receivable turnover: 8.3 times The company is collecting more efficiently. (true or false) (b) Calculate the ratio of Allowance for Uncollectible Accounts to Accounts Receivable at the end of January. Based on a comparison of this ratio to the same ratio at the beginning of January, does the company expect an improvement or worsening in cash collections from customers on credit sales? Ratio of Allowance for Uncollectible Accounts to Accounts Receivable Should the company expect improving or worsening conditions?

Answer 1

3D Family Fireworks Journal Enteries Date Particulars 2.1.2021 Cash a/c Dr. To Service Revenue (Services provided for cash) Debit in $ Credit in $ 43100 43100 80400 6.1.2021 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) 80400 2000 15.1.2021 Allowance for uncollectible accounts To Accounts Receivable (Uncollectibles written off) 2000 Dr. 32200 20.1.2021 Salary Expense a/c To Cash (Salary paid in cash) 32200 78000 22.1.2021 Cash a/c Dr. To Accounts Receivable (Cash received from debtors) 78000 6300 25.1.2021 Accounts Payable a/c Dr. To Cash (Creditors paid) 6300 Dr. 14500 30.1.2021 Utilities Expense a/c To Cash (Utilities paid in cash) 14500 Adjusting Enteries Date Particulars Debit in $ Credit in $ 31.1.2021 Bad Debts a/c Dr. 1310 To Allowance for uncollectible accounts 1310 (Bad debts estimated ) 5800 x 20% = 1160 + 450 = 1610 - 400 = 1210 14800 - 5800 = 9000 x 5% = 450 Allowance for Uncollectibles = 2400 - 2000 = 400 2650 31.1.2021 Supplies Expense a/c Dr. To Supplies (Supplies Expensed) 3300 - 650 = 2650 2650 140 31.1.2021 Interest Receivable a/c Dr. To Interest Income (Interest Revenue accrued) 28000 x 6% x 1/12 = 140 140 Dr. 34300 31.1.2021 Salary Expense a/c To Salary Payable (Salary accrued) 34300

Worksheet For the period ending 31.1.2021 Particulars Cash Accounts Receivable Allowance for uncollectible accounts Interest Receivable Supplies Notes Receivable 6% Land Accounts Payable Salary Payable Common Stock Retained Earnings Service Revenue Interest Income Salary Expense Utilities Expense Bad Debts Supplies Expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 93600 93600 14800 14800 400 1310 1710 140 140 3300 2650 650 28000 28000 77800 77800 3100 3100 34300 34300 104000 104000 33200 33200 123500 123500 140 140 32200 34300 66500 14500 14500 1310 1310 2650 2650 264200 264200 38400 38400 299950 299950

123500 140 123640 Statement of Income For the period ending 31.1.2021 Service Revenue Interest Income Total Revenue Less: Salary Expense 66500 Utilities Expense 14500 Bad Debts 1310 Supplies Expense 2650 Net Income 84960 38680 Statement of Retained Earnings For the period ending 31.1.2021 Beginning 33200 Net Income 38680 71880

Amounts in $ Amounts in $ Balance sheet As at 31.1.2021 Assets Current Assets Cash Accounts Receivable Allowance for uncollectible accounts Interest Receivable Supplies Amounts in $ Amounts in $ Liabilities Current Liabilities 93600 Accounts Payable 14800 Salary Payable -1710 140 650 107480 3100 34300 37400 Non Current Assets Notes Receivable 6% Land Total Assets Shareholders Equity 28000 Common Stock 77800 Retained Earnings 213280 Total Liabilities & Equity 104000 71880 175880 213280 Receivables Turnover = Service Revenue / Avg. Receivables = 123500/(14400 - 2400 + 14800 - 1710)/2 = 123500 / 12545 = 9.84 Days in Receivables = 365 / 9.84 = 37.09 Days Company recovers receivables in 37.09 Days in comparison to 89 days in industry Ratio of allowance for uncollectibles to Accounts Receivable 1.1.2021 = 2400 / 14400 = 16.67% 31.1.2021 = 1710 / 14800 = 11.55% Company is improving.