Question

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2018, year-end balance sheet: Current assets: Accounts receivable, net of $26,000 in allowance for uncollectible accounts $ 228,000 Interest receivable 7,850 Notes receivable 280,000 Additional Information: The notes receivable account consists of two notes, a $55,000 note and a $225,000 note. The $55,000 note is dated October 31, 2018, with principal and interest payable on October 31, 2019. The $225,000 note is dated June 30, 2018, with principal and 6% interest payable on June 30, 2019. During 2019, sales revenue totaled $1,360,000, $1,290,000 cash was collected from customers, and $24,000 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 $225,000 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.

Answer 1

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Working 1:	Interest Rate for Note of $ 55000
	Interest for 2018:
	Total Interest (From Balance sheet)		$            7,850
	Less:
	Interest on 225000 Note		$            6,750
	(225000*6%*6/12)
	Interest on 55000 Note for 2 Months		$            1,100
	Hence Rate for 100000 Note is		12%
	(1100/55000*12/2)
Requirement -1
	Interest for 2019:
	55000*12%*10/12		$            5,500
	225000*6%*3/12		$            3,375
	(Jan Feb Mar)
	Interest Revenue		$            8,875
	Bad Debt Expense:
	Analysis of accounts receivable :
	Beginning accounts receivable	228000+26000	$       254,000
	Add: Credit sales		$   1,360,000
	Less: Write offs		$        -24,000
	Less: Cash collections		$ -1,290,000
	Ending accounts receivable		$       300,000
	Analysis of allowance for uncollectible accounts:
	Beginning allowance		$         26,000
	Add: Bad debt expense (26000-24000-30000)		$         28,000
	Less: write offs		$        -24,000
	Ending allowance 300000*10%		$         30,000
	Loss on Note Receivable:
	225000*6%*9/12		$         10,125
	Add: Note Receivable		$       225,000
	Carrying Value of Note	A	$       235,125
	Face Amount		$       225,000
	Interest on Maturity 225000*6%		$         13,500
	Maturity Value		$       238,500
	Less Discount 238500*8%*3/12		$            4,770
	Cash Proceeds	B	$       233,730
	Loss on sale of Note Receivable	A-B	$            1,395
	Interes Revenue	$              8,875
	Bad Debt Expense	$           28,000
	Loss on Sale of Note	$              1,395
Requirement -2
	Accounts Receivable, Net of 30000 in allowance	$         270,000
	Receivable Turnover Ratio
	(Credit Sale/Average Receivable)	5.15
	1360000/266000
	Average Receivable	$         264,000
	(228000+300000)/2