Exercise 7-20 Presented below is information for Kingbird Company. 1. Beginning-
ID: 2395164 • Letter: E
Question
Exercise 7-20 Presented below is information for Kingbird Company. 1. Beginning-of-the-year Accounts Receivable balance was $16,600. 2. Net sales (all on account) for the year were $102,400. Kingbird does not offer cash discounts. 3. Collections on accounts receivable during the year were $90,000. Prepare (summary) journal entries to record the items noted above. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 1. 2. 3. SHOW LIST OF ACCOUNTS Compute Kingbird’s accounts receivable turnover and days to collect receivables for the year. The company does not believe it will have any bad debts. (Round answers to 2 decimal places, e.g. 4.57.) Accounts receivable turnover times Days to collect accounts receivable days Use the results to analyze Kingbird's liquidity. The turnover ratio last year was 8.1. This is a trend in liquidity.
Explanation / Answer
1.
General Journal
Debit
Credit
Accounts Receivable
102400
Sales
102400
Cash
90000
Accounts Receivable
90000
2.
Accounts Receivable Turnover = Sales / Average Receivables
Beginning Accounts Receivable
$16600
Add: Sales
102400
Total Receivables
119000
Less: Cash Receipts
90000
Ending Accounts Receivable
$29000
Accounts Receivable Turnover = $102400/[(16600+29000)/2] = 4.49
3.(Turn over ratio last year was 8.1)
It should be declined. Because this could be a bad indication of future liquidity, if customers continue to pay slowly. Kingbird may want to consider offering early payment (cash) discounts.
General Journal
Debit
Credit
Accounts Receivable
102400
Sales
102400
Cash
90000
Accounts Receivable
90000
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