Question

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2021, year-end balance sheet:

Current assets:
Accounts receivable, net of $35,000 in allowance for uncollectible accounts	$	273,000
Interest receivable		10,100
Notes receivable		370,000

Additional Information:

1. The notes receivable account consists of two notes, a $100,000 note and a $270,000 note. The $100,000 note is dated October 31, 2021, with principal and interest payable on October 31, 2022. The $270,000 note is dated June 30, 2021, with principal and 6% interest payable on June 30, 2022.
2. During 2022, sales revenue totaled $1,450,000, $1,335,000 cash was collected from customers, and $33,000 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.
3. On March 31, 2022, the $270,000 note receivable was discounted at the Bank of Commerce. The bank's discount rate is 10%. Chamberlain accounts for the discounting as a sale.

Required:
In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2022 income statement?
What amounts will appear in the 2022 year-end balance sheet for accounts receivable and Calculate the receivables turnover ratio for 2022.

Answer 1

Part 1	Interest revenue
	$270,000 note ($270,000*6%*3/12)	$                  4,050
	$100,000 note ($100,000*12%*10/12)	$                10,000
a	Total interest revenue	$                14,050
	The interest rate on the $100,000 note can be determined as follows:
	Interest receivable in 12/31/21 balance sheet	$                10,100
	Less: Interest on $270,000 note $270,000*6%*6/12	$                (8,100)
	Interest on $60,000 note	$                  2,000
	Annual interest ($2,000/2*12)	$                12,000
	interest rate $12,000/$100,000	12%
	Bad debt expense
	Analysis of accounts receivable:
	Beginning accounts receivable	$              308,000
	Add: Credit sales	$           1,450,000
	Less: Cash collections	$         (1,335,000)
	Less: Write-offs	$              (33,000)
	Ending accounts receivable	$              390,000
	Analysis of allowance for uncollectible accounts
	Beginning allowance	$                35,000
b	Add: Bad debt expense	$                37,000
	Less: Write-offs	$              (33,000)
	Ending allowance ($390,000*10%)	$                39,000
	Loss on sale of note receivable
	Calculation of cash proceeds received from discounting note:
	Face amount	$              270,000
	Interest to maturity	$                16,200
	Maturity value	$              286,200
	Discount ($286,200*10%*3/12)	$                (7,155)
	Cash proceeds	$              279,045
	Carrying value of note	$              282,150
	Less: Cash proceeds	$              279,045
c	Loss on sale of note receivable	$                  3,105
Part 2
	Accounts receivable, net of $39,000 in allowance for uncollectible accounts	$   351,000
Part 3
	Accounts receivable turnover ratio	$           1,450,000
	($273,000+$351,000)/2	$              312,000
	Accounts receivable turnover ratio	4.65