Exercise 7-15B Comprehensive single-cycle problem

Accounting for Receivables

Exercise 7-15B Comprehensive single-cycle problem

The following post-closing trial balance was drawn from the accounts of Southern Timber Co. as of December 31, Year 1:

Transactions for Year 2:

1. Acquired an additional $20,000 cash from the issue of common stock.
2. Purchased $80,000 of inventory on account.
3. Sold inventory that cost $61,000 for $98,000. Sales were made on account.
4. Wrote off $1,500 of uncollectible accounts.
5. On September 1, Southern loaned $10,000 to Pine Co. The note had a 6 percent interest rate and a one-year term.
6. Paid $24,500 cash for salaries expense.
7. Collected $99,000 cash from accounts receivable.
8. Paid $78,000 cash on accounts payable.
9. Paid a $5,000 cash dividend to the stockholders.
10. Accepted credit cards for sales amounting to $5,000. The cost of goods sold was $3,500. The credit card company charges a 4% service charge. The cash has not been received.
11. Estimated uncollectible accounts expense to be 1 percent of sales on account.
12. Recorded the accrued interest at December 31, Year 1.

Required:

a. Record the preceding transactions in general journal form.
b. Open T-accounts and record the beginning balances and the Year 2 transactions.
c. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.

Exercise 7-16B Accounts receivable turnover and average days to collect accounts receivable

The following information is available for Bradford Inc. and Windsor Inc. at December 31:

Required:

a. What is the accounts receivable turnover for each of the companies?
b. What is the average days to collect the receivables?
c. Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for each company?