Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2018, year-end balance sheet: Current assets: Accounts receivable, net of $24,000 in allowance for uncollectible accounts $ 218,000 Interest receivable 6,800 Notes receivable 260,000 Additional Information: The notes receivable account consists of two notes, a $60,000 note and a $200,000 note. The $60,000 note is dated October 31, 2018, with principal and interest payable on October 31, 2019. The $200,000 note is dated June 30, 2018, with principal and 6% interest payable on June 30, 2019. During 2019, sales revenue totaled $1,340,000, $1,280,000 cash was collected from customers, and $22,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable. On March 31, 2019, the $200,000 note receivable was discounted at the Bank of Commerce. The bank's discount rate is 8%. Chamberlain accounts for the discounting as a sale. Required: 1. Not including sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2019 income statement? 2. & 3. What amounts will appear in the 2019 year-end balance sheet for accounts receivable and Calculate the receivables turnover ratio for 2019.
Not including sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2019 income statement?
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Requirement 1:The following Revenue and expenses will occur in 2019 income statement | |||
1 | Revenue | ||
$200,000*6%*3/12 =$3,000 | |||
$60,000*8%*10/12 =$4,000 | |||
Total revenue =$7,000 | |||
2 | Accounts receivable | ||
Beginning accounts receivable(Gross) =$242,000($218,000+$24,000) | |||
Add:Credit sales =$1,340,000 | |||
Less:Write-offs =$(22,000) | |||
Less:Cash collection =(1,280,000) | |||
Ending Acconts Receivable =$280,000 | |||
Allowance for uncollectible accounts | |||
Beginning allowance =$24,000 | |||
Add:Bad debt expenses(Balancing figure) =$26,000(24,000-22,000-28,000) | |||
Less:Write-offs =$(22,000) | |||
Ending allowance =$28,000(280,000*10%) | |||
3 | Loss on sale of Notes receivable =$200,000*6%*9/12 =$9,000 | ||
4 | Opening Notes receivable =$200,000 | ||
Add:Interest on maturity =$12,000($200,000*6%) | |||
Maturity value =$212,000 | |||
Less:Discount = $(4,240) ($212,000*8%*3/12) | |||
Cash Proceeds =$207,760 | |||
5 | Carrying value of Notes Receivable= $209,000($200,000+9,000) | ||
Less:Cash Proceeds =$(207,760) | |||
Loss on sale of notes receivable =$1,240 | |||
Req 2 | Accounts Receivable =$280,000 | ||
Less:Allowance for uncollectible accounts =$28,000 | |||
Net accounts receivable for 2019 =$252,000 | |||
Req 3 | Accounts Receivable Ratio =Net credit sales / Average Accounts receivable | ||
Average Accounts receivable =($218,000+$252,000) / 2 =$235,000 | |||
Accounts Receivable Ratio =$1,340,000 / $235,000 =5.7 times | |||
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