Question

The Sheffield Pub provides catering services to local businesses. The following information was
available for The Sheffield Pub for the years ended December 31, 2019 and 2020.

   December 31, 2019    Decembe31, 2020

Cash $ 2,130 $    1,690
Accounts receivable 46,200    ?
Allowance for doubtful accounts 580 ?
Other current assets    8,260    7,860
Current liabilities    38,900 44,300
Total credit sales    201,000 250,000
Collections on accounts receivable 190,000 228,000
Sheffield management is preparing for a meeting with its bank concerning renewal of a loan and
has collected the following information related to the above balances.
1. The cash reported at December 31, 2020, reflects the following items: petty cash $1,580 and
postage stamps $110. The other current assets balance at December 31, 2020, includes the
checking account balance of $3,740.
2. On November 30, 2020, Sheffield agreed to accept a 6-month, $5,170 note bearing 12%
interest, payable at maturity, from a major client in settlement of a $5,170 bill. The above
balances do not reflect this transaction.
3. Sheffield factored some accounts receivable at the end of 2020. It transferred accounts
totaling $10,000 to Final Factor, Inc. with recourse. Final Factor will receive the collections
from Sheffield’s customers and will retain 2% of the balances. Final Factor assesses Sheffield
a finance charge of 3% on this transfer. The fair value of the recourse liability is $410.
However, management has determined that the amount due from the factor and the fair
value of the resource obligation have not been recorded,and neither are included in the
balances above.
4. Sheffield charged off uncollectible accounts with balances of $1,420. On the basis of the
latest available information, the 2020 provision for bad debts is estimated to be 2.5% of
accounts receivable.

Based on the above transactions, determine the balance for (1) Accounts Receivable and (2)
Allowance for Doubtful Accounts at December 31, 2020. (Round answers to 0 decimal
places, e.g. 125.)
Accounts receivable ending balance $
Allowance for doubtful ending balance $

Prepare the current assets section of The Sheffield Pub’s balance sheet at December 31, 2020.

(see image)

Compute Sheffield’s current ratio and accounts receivable turnover for December 31, 2020. The
accounts receivable turnover in 2019 was 4.37. (Round answers to 2 decimal places,

Prepare the current assets section of The Sheffield Pub's balance sheet at December 31, 202 (Round answers to 0 decimal places, e.g. 125.) THE SHEFFIELD PUB Balance Sheet Page 2 | 3 - Q +

Answer 1

The Sheffield Pub
Computation of the balance of Accounts receivable
Beginning balance	$46,200
Add: Credit Sales	$250,000
Less: Collections	($228,000)
Less: Transfer to Notes Receivable	($5,170)
Less: Uncollectible debts	($1,420)
Less: Sold to Factor	($10,000)
Ending balance	$51,610
Allowance for bad debts @ 2.50% on Accounts receivable	$1,290
Computation of the balance of Allowance for doubtful debts
Beginning balance	$580
Less: Bad debts charged to Accounts receivable	($1,420)
Less: Bad debts	($450)
Ending balance	($1,290)
Current assets
Cash and cash equivalents	$14,930
Accounts receivable	$51,610
Less: Allowance for doubtful debts	($1,290)
Notes receivable	$5,170
Due from Factor	$200
Interest receivable	$52
Other current assets	$4,120
Total current assets	$74,792
Current ratio = Current assets/Current liabilities
	2020
Current assets	$74,792
Current liabilities	$44,710
Current ratio	1.67
Accounts receivable turnover = Net Credit Sales/Average Accounts Receivable
Average Accounts Receivable
Beginning Accounts Receivable balance	$46,200
Ending Accounts Receivable balance	$51,610
	$97,810
Average Accounts Receivable	$48,905
Net Credit Sales	$250,000
Average Accounts Receivable	$48,905
Accounts Receivable Turnover	5.11
Working Notes
Cash and cash equivalents
Petty Cash	$1,580
Add: Received from Factor	$9,500
		$11,080
Checking account		$3,740
Postage stamps		$110
Total cash and cash equivalents		$14,930
Computation of Interest receivable on 6% Notes
Notes receivable	$5,170
Rate of interest	12%
Period ( in months)	1
Interest receivable	$52
Computation of current liabilities
Current liabilities	$44,300
Add:Recourse liability on factoring contract	$410
Total Current liabilities	$44,710
Journal entry for Factoring contract
Account Title	Debit	Credit
Cash (current asset)	$9,500
Due from Factor (current asset)	$200
Loss on factoring (expense)	$710
Recourse liability (current liability)		$410
Accounts receivable (current asset)		$10,000