Accounting Assignment: Business Case Analysis
Question
Task: Prepare an accounting assignment addressing the questions below.
Answer
Q1:Prepare journal entries in the accounting assignmentto record the following transactions entered into by the Castagno Company:
2022
Nov. 1 Sold merchandise on account to Mercer, Inc., for $18,000, terms 2/10, n/30.
Nov. 5 Mercer, Inc., returned merchandise worth $1,000.
Nov. 9 Received payment in full from Mercer, Inc.
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In the books of Castagno company |
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Date |
Particulars |
Amount ($) |
Amount ($) |
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Dr |
Cr |
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01.11.2022 |
Mercer Inc. Account…Dr |
$ 18,000.00 |
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To Sales account |
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$ 18,000.00 |
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(Being credit sales made to Mercer Inc.) |
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05.11.2022 |
Sales return account…Dr |
$ 1,000.00 |
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To Mercer Inc. Account |
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$ 1,000.00 |
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(Being sales return made by Mercer Inc.) |
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09.11.2022 |
Cash/Bank account…Dr |
$ 16,660.00 |
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Cash discount account…Dr |
$ 340.00 |
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To Mercer Inc. account |
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$ 17,000.00 |
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(Being payment received by Mercer Inc. within the 10 days so 2% cash discount has been allowed as per policy i.e. $17000*2%=$340) |
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Q2:The ledger of the Ramirez Company at the end of the current year shows Accounts Receivable of $200,000.
Instructions
(a) If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for the end of the period. (Show all calculations.)
(b) If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for the end of the period. (Show all calculations.)
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In the books of Ramirez company
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PART a) |
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Account Receivables at the end of the current year |
$2,00,000.00 |
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Allowance for doubtfull debt at the opening (Cr) |
$ 3,000.00 |
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Bad debts are expected to be 8% of the account receivables |
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Bad debt expected = 8%*$200,000 |
$ 16,000.00 |
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Allowance for doubtfull debt |
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Date |
Particulars |
Amount(Dr) |
Date |
Particulars |
Amount(Cr) |
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Opening balance |
$ 3,000.00 |
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Profit and loss account |
$ 16,000.00 |
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Bad debt expected |
$ 13,000.00 |
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Closing balance |
$ - |
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Journal |
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Particulars |
Amount ($) |
Amount ($) |
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Dr |
Cr |
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Bad debt Allowance account…Dr |
$ 13,000.00 |
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To Allowance for doubtful debt |
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$ 13,000.00 |
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(Being bad debt expected on receivables recorded) |
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Profit and loss account…Dr |
$ 16,000.00 |
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To Allowance for dab debt |
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$ 16,000.00 |
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(Being allowance for doubtful debt written off) |
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In the books of Ramirez company
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Part b) |
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Account Receivables at the end of the current year |
$2,00,000.00 |
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Allowance for doubtfull debt at the opening (Dr) |
$ 3,000.00 |
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Bad debts are expected to be 8% of the account receivables |
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Bad debt expected = 8%*$200,000 |
$ 16,000.00 |
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Allowance for doubtfull debt |
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Date |
Particulars |
Amount(Dr) |
Date |
Particulars |
Amount(Cr) |
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Opening balance |
$ 3,000.00 |
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Profit and loss account |
$ 16,000.00 |
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Bad debt expected |
$ 19,000.00 |
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Closing balance |
$ - |
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Journal |
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Particulars |
Amount ($) |
Amount ($) |
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Dr |
Cr |
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Bad debt Allowance account…Dr |
$ 19,000.00 |
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To Allowance for doubtful debt |
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$ 19,000.00 |
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(Being bad debt expected on receivables recorded) |
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Profit and loss account…Dr |
$ 16,000.00 |
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To Allowance for dab debt |
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$ 16,000.00 |
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(Being allowance for doubtful debt writen off) |
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Q3:Shafer Company has the following accounts in its general ledger at July 31: Accounts Receivable $49,000 and Allowance for Doubtful Accounts $3,400. During August, the following transactions occurred.
Aug. 15 Sold $30,000 of accounts receivable to More Factors, Inc. who assesses a 2% finance charge.
25 Made sales of $2,500 on Visa credit cards. The credit card service charge is 3%.
28 Made sales of $4,000 on Shafer credit cards.
Instructions
(a) Journalize the transactions.
(b) Indicate the statement presentation of service charges.
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In the books of Ramirez company
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PART a) |
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Account Receivables at the end of the current year |
$2,00,000.00 |
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Allowance for doubtfull debt at the opening (Cr) |
$ 3,000.00 |
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Bad debts are expected to be 8% of the account receivables |
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Bad debt expected = 8%*$200,000 |
$ 16,000.00 |
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Allowance for doubtfull debt |
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Date |
Particulars |
Amount(Dr) |
Date |
Particulars |
Amount(Cr) |
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Opening balance |
$ 3,000.00 |
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Profit and loss account |
$ 16,000.00 |
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Bad debt expected |
$ 13,000.00 |
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Closing balance |
$ - |
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Journal |
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Particulars |
Amount ($) |
Amount ($) |
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Dr |
Cr |
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Bad debt Allowance account…Dr |
$ 13,000.00 |
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To Allowance for doubtful debt |
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$ 13,000.00 |
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(Being bad debt expected on receivables recorded) |
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Profit and loss account…Dr |
$ 16,000.00 |
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To Allowance for dab debt |
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$ 16,000.00 |
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(Being allowance for doubtful debt written off) |
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In the books of Ramirez company
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Part b) |
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Account Receivables at the end of the current year |
$2,00,000.00 |
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Allowance for doubtfull debt at the opening (Dr) |
$ 3,000.00 |
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Bad debts are expected to be 8% of the account receivables |
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Bad debt expected = 8%*$200,000 |
$ 16,000.00 |
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Allowance for doubtfull debt |
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Date |
Particulars |
Amount(Dr) |
Date |
Particulars |
Amount(Cr) |
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Opening balance |
$ 3,000.00 |
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Profit and loss account |
$ 16,000.00 |
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Bad debt expected |
$ 19,000.00 |
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Closing balance |
$ - |
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Journal |
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Particulars |
Amount ($) |
Amount ($) |
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Dr |
Cr |
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Bad debt Allowance account…Dr |
$ 19,000.00 |
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To Allowance for doubtful debt |
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$ 19,000.00 |
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(Being bad debt expected on receivables recorded) |
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Profit and loss account…Dr |
$ 16,000.00 |
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To Allowance for dab debt |
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$ 16,000.00 |
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(Being allowance for doubtful debt writen off) |
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b) |
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Service charges are expenses for the company so it will be debited in the profit and loss account |
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Service charges account..Dr |
$ 75.00 |
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To Profit and Loss account |
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$ 75.00 |
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(Being service charges written off) |
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Q4:
COMPLETION STATEMENTS
1. Notes and accounts receivable that result from sales transactions are often called___trade___________ receivables.
2. Two accounting problems associated with accounts receivable are (1) __when to recognize revenue____________ and (2) _valuing & accelerating collection of a_____________ accounts receivable.
3. The net amount expected to be collected in cash from receivables is the _cash realisable value/net realisable value.____________.
4. When credit sales are made, ___Bad debt/ allowance for bad debt ______________ Expense is considered a normal and necessary risk of doing business on a credit basis.
5. The two methods used in accounting for uncollectible accounts are the __allowance__________ method and the _______direct write-off_______ method.
6. Allowance for Doubtful Accounts is a ____Nominal_________ account which is ______deducted________ from Accounts Receivable on the balance sheet.
7. When the allowance method is used to account for uncollectible accounts, _bad debt___________ is debited when an account is determined to be uncollectible.
8. The _____actual____________ basis of estimating uncollectibles normally results in the best approximation of _____bad debt __________ value.
9. A 75-day note receivable dated July 5 would mature on September 18.
10. Collection of a note receivable will result in a credit to __notes receivable____________ for the face value of the note and a credit to _____bank/cash_________.
11. A note that is not paid on the maturity date is said to be ____dishonored__________.
12. A concentration of _______credit risk_______ is a threat of nonpayment from a single customer or class of customers.
13. Ratios used to assess the liquidity of accounts receivable are _____account receivable turnover ratio in days_________and ____current ratio___________.
14. A finance company or bank that purchases receivables from businesses is known as a__factoring____________.
Q5:
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Company Name |
Net Credit Sales |
Beginning Net Receivables |
Ending Net Receivables |
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Brown |
$180,000 |
$ 5,000 |
$30,000 |
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Pink |
$400,000 |
$52,000 |
$42,000 |
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Yellow |
$ 75,000 |
$ 5,400 |
$ 5,800 |
(a) Which company is doing the best job of managing its accounts receivable? Why? Be sure to support your answer with computations.
(b) What are your concerns about these companies?
Part A
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Company Name |
Net Credit sales |
Beginning Net Receivables |
Ending Net Receivables |
Average Net Receivables |
Payment received during the year |
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Brown |
$ 1,80,000.00 |
$ 5,000.00 |
$ 30,000.00 |
$ 17,500.00 |
$ 1,55,000.00 |
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Pink |
$ 4,00,000.00 |
$ 52,000.00 |
$ 42,000.00 |
$ 47,000.00 |
$ 4,10,000.00 |
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Yellow |
$ 75,000.00 |
$ 5,400.00 |
$ 5,800.00 |
$ 5,600.00 |
$ 74,600.00 |
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Account receivable turnover ratio= |
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Net Credit Sales |
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Average Net Receivables |
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Brown |
=$180,000 |
10.29 |
times |
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$17,500 |
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Pink |
=$400,000 |
8.51 |
times |
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$47,000 |
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Yellow |
=$75,000 |
13.39 |
times |
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$5,600 |
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Account receivable turnover ratio in days= |
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365/Account receivables turnover ratio |
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Brown |
= 365/10.29 |
35 |
days |
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Pink |
= 365/8.51 |
43 |
days |
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Yellow |
= 365/13.39 |
27 |
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From the above analysis presented in the accounting assignment we can see that the all the companies have different combination but if we consider the sales so we can see that Pink company account receivable turnover ratio is around 9 times and the collection period is 43 days.Thus considering the volume of the turnover the Pink Company is in better position than rest of the company
Part B
The company who is able to collect the receivable at the earliest has less risk of bad debts but the company who is not able to collect from receivablesis likely to have more
