Question

Recording Receivables Transactions, Determining Bad Debt Expens Ratios (AP6-7) e, and Interpreting At December 1, 2017, Imalda Inc. reported the following information on its s osition: Accounts receivable Allowance for doubtful accounts tatement of financial $154,000 4,500 (credit balance)

Answer 1

1.

Date	Account Titles and Explanation	Debit	Credit
Dec. 5	Cash	19000
	Accounts receivable	48000
	Sales revenue		67000
	(To record sales revenue)
Dec. 5	Cost of goods sold	35000
	Inventory		35000
	(To record the cost of goods sold)
Dec. 12	Cash	24000
	Accounts receivable		24000
	(To record collection on account)
Dec. 20	Cash	90000
	Accounts receivable		90000
	(To record collection on account)
Dec. 26	Allowance for doubtful accounts	3000
	Accounts receivable		3000
	(To record write-off of uncollectible accounts)

2.

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Bad debt expense	2000
	Allowance for doubtful accounts		2000
	(To record bad debt expense)

Working:

	Aging of Accounts Receivable				Total
	Not Yet Due	1-30 Days Past Due	31-60 Days Past Due	Over 60 days Past Due
Total $	42000	31500	5000	6500	85000
Estimated % uncollectible	1%	2%	10%	30%
Uncollectible amount $	420	630	500	1950	3500

Allowance for Doubtful Accounts
Beg. Bal.		4500
Write-off	3000	2000	Bad debt expense
End. Bal.		3500

3. Gross profit percentage = Gross profit/Sales revenue = $32000/$67000 = 47.76%

Gross profit = Sales revenue - Cost of goods sold = $67000 - $35000 = $32000

The gross profit percentage denotes the percentage of sales less the cost of goods sold is to the total sales.

Receivables turnover ratio = Credit sales/Average accounts receivables = $48000/$115500 = 0.42 times

Average accounts receivable = [($154000 - $4500) + ($85000 - $3500)]/2 = [$149500 + $81500]/2 = $231000/2 = $115500

The receivables turnover ratio compares the credit sales during a period to the average receivables balance during that period. It indicates how many times during a period an organization generates and collects receivables.

Note: The ratios are rounded off to 2 decimal places.