Question 8 Thefollowing information is available for XYZ Company: January 1, 200

Question

Question 8

Thefollowing information is available for XYZ Company:

                      January 1, 2004      December 31, 2004

Accounts receivable      65,000                   ?

Thefollowing information was taken from XYZ Company's 2004 incomestatement:

Salesrevenue                  $500,000

Cost of goodssold              260,000

Salariesexpense                 70,000

Rentexpense                     40,000

Income taxexpense               39,000

Netincome                     $ 91,000

In its2004 statement of cash flows, XYZ Company reported cash collectedfrom customers of
$446,000. Additionally, it is known that XYZ Company's averagecollection period for 2004
was 58.40 days. Calculate the amount of accounts receivablewritten off as uncollectible
by XYZ Company during 2004. Do not use decimals in youranswer.

Question 8

Explanation / Answer

Receivables Dec 31, 2004 - $ 80,000 Accounts receivable written off - $ 39,000 Explanation Receivable turn over = 365 / days in debtors                               = 365 / 58.4                              = 6.25 Average receivables = Net sales                                   Receivables turnover                                                  = 500,000 / 6.25                                                         = 80,000 Receivables should exist after collection Beginning receivables + Sales - cash collection 65,000 + 500,000 -446,000 = 119,000 But the receivables actually available at the end of Dec 31,2004 is $ 80,000. The difference is uncollectibles writtenoff. 119,000 - 80,000 = 39,000.

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