Question

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.

Answer 1

Answers:

1.Answer

Revenue

$ 200,000 × 6% × 3/12 = $3000

$60000 × 8% × 10/12 = $4000

Total Interest Revenue = $7000

Bad debt expense:-

Analysis of accounts Receivable

Beginning accounts Receivable $ 242,000 ($218,000 + $24000)

Add:- Credit Sales $1,340,000

Less:- Written off ($22000)

Less:- Cash Collections ($1,280,000)

Ending Accounts Receivable $280,000

Analysis of allowance for uncollectible amounts:-

Beginning allowance $24000

Add:- Bad debt expense $26000 ($24000 + $28000 - $22000)

Less:- Written off ($22000)

Ending Allowance $28000

Calculation of Ending allowance:-

($280,000 × 10 % = $28000)

Loss on sale of notes Receivable :-

$200,000 × 6% × 9/12 = $9000

Face Amount $ 200,000

Interest to maturity $12000 ($200,000 × 6%)

Maturity value $212,000 (A)

Discount $4240 ($212,000 × 8% × 3/12) (B)

Cash proceeds $207,760 (C) = A + B

Carrying Value of notes Receivable $209,000 ($200,000 + $9000 Interest Receivable)

Less:- Cash Proceeds $ 207,760

Loss on sale of notes Receivable $1240

2.Answer:-

Accounts Receivable net of $28,000 in allowance for uncollectible acounts $252,000

3.Answer:-

  Calculation of Receivables Turnover Ratio:

Formula = Credit Sales / [(Opening Notes Receivable + Closing Notes Receivable )/2]

= $1,340,000 / [($218,000 + $252,000)/2]

= $1,340,000/$235000

= 5.7 times