Question

Excerpts from Michael Organization's December 31, 2018 and 2017, financial statements are presented below:

	2018					2017
Accounts receivable	$	40,000					$	36,000
Merchandise inventory	$	28,000						35,000
Net sales		190,000						186,000
Cost of goods sold		114,000						108,000
Total assets		425,000						405,000
Total shareholders' equity		240,000						225,000
Net income		32,500						28,000

Michael's 2018 average collection period is:

question 2:

On June 1st, Jane & Sons received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 27th. A $50 deposit was received on June 5th and the remaining $450 was paid on June 30th. Lucy likely would recognize revenue on:

Answer 1

Requirement 1:

Computation of Michael's organizations collection period:

Collection period = 365 / receivable turnover

= 365 / 5

= 73days

Computation of receivable turnover = Net sales / Average inventory

= $190,000/$38,000

= 5.0

Average inventory =( opening +closing)Receivables / 2

= ($40,000+$36,000)/2

= $38,000

Requirement 2:

According to GAAP, and revenue recognition principle revenue should be recorded only when goods and services will provide to customer, if amount received in advance that will recorded as unearned revenue and unearned revenue is considered as liability.

Therefore, as per given question revenue is recorded by using accural principle on 27th June.