A financial service company is aware that customers are being charged fees for receiving financial advice that will not be given. This is in breach of the company’s own code of conduct and consumer law. Senior management delay remediation in an effort to meet their own sales targets. Complaints by customers and whistleblowers are ignored at all levels in the company.
In your own words, critique the following statement by the CEO:
“ ... this is our normal business practice, everyone else in the industry is doing the same, and our company has a policy of being socially responsible at all times. Our risk culture is exemplary and supports our growth strategy.”
Answer ALL of the following questions in your own words:
In: Finance
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 2 days. Assume 365 days a year. Average number of payments per day 780 Average value of payment $ 730 Variable lockbox fee (per transaction) $ .15 Annual interest rate on money market securities 4.2 % a. What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose in addition to the variable charge that there is an annual fixed charge of $5,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2020
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $37,000 | $ | 467,000 |
During 2021, credit sales were $1,785,000, cash collections from customers $1,865,000, and $42,000 in accounts receivable were written off. In addition, $3,700 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0−60 days | 60 | % | 3 | % |
| 61−90 days | 10 | 5 | ||
| 91−120 days | 20 | 25 | ||
| Over 120 days | 10 | 45 | ||
Required:
1. Prepare summary journal entries to account for
the 2021 write-offs and the collection of the receivable previously
written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
3. For situations (a)−(c) in requirement 2
above, what would be the net amount of accounts receivable reported
in the 2021 balance sheet?
If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
| No | Event | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Allowance for uncollectible accountsselected answer correct | 42,000selected answer correct | not attempted |
| Accounts receivableselected answer correct | not attempted | 42,000selected answer correct | ||
| 2 | 2 | Accounts receivableselected answer correct | 3,700selected answer correct | not attempted |
| Allowance for uncollectible accountsselected answer correct | not attempted | 3,700selected answer correct | ||
| 3 | 3 | Cashselected answer correct | 3,700selected answer correct | not attempted |
| Accounts receivableselected answer correct | not attempted | 3,700selected answer correct |
Prepare the year-end adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
| No | Transaction | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | a. | Bad debt expenseselected answer correct | 35,700selected answer correct | not attempted |
| Allowance for uncollectible accountsselected answer correct | not attempted | 35,700selected answer correct | ||
| 2 | b. | Bad debt expenseselected answer correct | 71,400selected answer incorrect | not attempted |
| Allowance for uncollectible accountsselected answer correct | not attempted | 71,400selected answer incorrect | ||
| 3 | c. | Bad debt expenseselected answer correct | not attempted | not attempted |
| Allowance for uncollectible accountsselected answer correct | not attempted | not attempted |
For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
|
In: Accounting
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2017
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $46,000 | $ | 512,000 |
During 2018, credit sales were $1,830,000, cash collections from customers $1,910,000, and $55,000 in accounts receivable were written off. In addition, $4,600 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0–60 days | 60 | % | 3 | % |
| 61–90 days | 10 | 5 | ||
| 91–120 days | 20 | 25 | ||
| Over 120 days | 10 | 45 | ||
Required:
1. Prepare summary journal entries to account
for the 2018 write-offs and the collection of the receivable
previously written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
Bad debt expense is estimated to be 2% of credit sales for the year.
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
3. For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?
In: Accounting
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2017
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $46,000 | $ | 512,000 |
During 2018, credit sales were $1,830,000, cash collections from customers $1,910,000, and $55,000 in accounts receivable were written off. In addition, $4,600 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0–60 days | 60 | % | 3 | % |
| 61–90 days | 10 | 5 | ||
| 91–120 days | 20 | 25 | ||
| Over 120 days | 10 | 45 | ||
Required:
1. Prepare summary journal entries to account
for the 2018 write-offs and the collection of the receivable
previously written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
Bad debt expense is estimated to be 2% of credit sales for the year.
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
3. For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance
In: Accounting
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2020
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $50,000 | $ | 532,000 |
During 2021, credit sales were $1,850,000, cash collections from customers $1,930,000, and $59,000 in accounts receivable were written off. In addition, $5,000 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0−60 days | 65 | % | 4 | % |
| 61−90 days | 15 | 10 | ||
| 91−120 days | 15 | 30 | ||
| Over 120 days | 5 | 50 | ||
Required:
1. Prepare summary journal entries to account for
the 2021 write-offs and the collection of the receivable previously
written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
In: Accounting
|
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year. |
| Average number of payments per day | 850 | ||
| Average value of payment | $ | 800 | |
| Variable lockbox fee (per transaction) | $ | .10 | |
| Annual interest rate on money market securities | 3.2 | % | |
| a. |
What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
|
Bird's Eye Treehouses, Inc., a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 2.5 days. Assume 365 days a year. |
| Average number of payments per day | 710 | ||
| Average value of payment | $ | 660 | |
| Variable lockbox fee (per transaction) | $ | .20 | |
| Annual interest rate on money market securities | 4.6 | % | |
| a. |
What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | Suppose in addition to the variable charge that there is an annual fixed charge of $4,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2020
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $41,000 | $ | 487,000 |
During 2021, credit sales were $1,805,000, cash collections from customers $1,885,000, and $50,000 in accounts receivable were written off. In addition, $4,100 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0−60 days | 65 | % | 4 | % |
| 61−90 days | 15 | 10 | ||
| 91−120 days | 15 | 30 | ||
| Over 120 days | 5 | 50 | ||
Required:
1. Prepare summary journal entries to account for
the 2021 write-offs and the collection of the receivable previously
written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
In: Accounting
Raintree Cosmetic Company sells its products to customers on a
credit basis. An adjusting entry for bad debt expense is recorded
only at December 31, the company’s fiscal year-end. The 2020
balance sheet disclosed the following:
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $43,000 | $ | 497,000 |
During 2021, credit sales were $1,815,000, cash collections from customers $1,895,000, and $52,000 in accounts receivable were written off. In addition, $4,300 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0−60 days | 60 | % | 3 | % |
| 61−90 days | 10 | 5 | ||
| 91−120 days | 20 | 25 | ||
| Over 120 days | 10 | 45 | ||
Required:
1. Prepare summary journal entries to account for
the 2021 write-offs and the collection of the receivable previously
written off.
2. Prepare the year-end adjusting entry for bad
debts according to each of the following situations:
3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
In: Accounting