Cordova Inc., reported the following receivables in its December 31, 2015, year-

Question

Cordova Inc., reported the following receivables in its December 31, 2015, year-end balance sheet:

Additional information:

1. The notes receivable account consists of two notes, a $100,000 note and a $300,000 note. The $100,000 note is dated October 31, 2015, with principal and interest payable on October 31, 2016. The $300,000 note is dated March 31, 2015, with principal and 8% interest payable on March 31, 2016.
2. During 2016, sales revenue totaled $2,120,000, $1,980,000 cash was collected from customers, and $41,000 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 8% of year-end accounts receivable.

Required:

1. In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Cordova's 2016 income statement?
2. Calculate the receivables turnover ratio for 2016.

Accounts receivable, net of $52,000 in allowance for uncollectible accounts $384,000 Interest receivable 19,000 Notes receivable 400,000

Explanation / Answer

1. In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Cordova's 2016 income statement?

Interest Revenue on 100,000 note is dated October 31, 2015 in 2015 = 19000 - 300,000*8%*9/12

Interest Revenue on 100,000 note is dated October 31, 2015 in 2015 = 1000

Balance in Account Recievable in 2016 = 384000+52000 + 2120000 -1980000 -41000

Balance in Account Recievable in 2016 = 535000

Allowance for uncollectible accounts need at the end of 2016 = 8%*535000 = 42800

Revenue

Sales Revenue = $ 2,120,000

Interest Revenue = 300,000*8%*3/12 + 1000 * 10/2 = $ 11000

Expenses

Bad Debt Expenses =  Allowance for uncollectible accounts need at the end of 2016 - ( Beginning  Allowance for uncollectible accounts - Amount W/off)

Bad Debt Expenses = 42800 -( 52000-41000)

Bad Debt Expenses = $ 31,800

2. Calculate the receivables turnover ratio for 2016.

Account receivables turnover ratio for 2016 = Net Sale/Average Account Recievable

Net Sale = 2120000

Average Account Recievable = (Beginning Account Recievable net + Ending Account Recievable net)/2

Average Account Recievable = (384000+ ( 535000-42800))/2

Average Account Recievable = 438100

Account receivables turnover ratio for 2016 = 2120000/438100

Account receivables turnover ratio for 2016 = 4.84 Times

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