Cordova, Inc., reported the following receivables in its December 31, 2015, year
ID: 2481026 • Letter: C
Question
Cordova, Inc., reported the following receivables in its December 31, 2015, year-end balance sheet: Current assets: Accounts receivable, net of $47,000 in allowance for uncollectible accounts $379,000 Interest receivable 19,750 Notes receivable 350,000 Additional information: 1. The notes receivable account consists of two notes, a $100,000 note and a $250,000 note. The $100,000 note is dated October 31, 2015, with principal and interest payable on October 31, 2016. The $250,000 note is dated March 31, 2015, with principal and 10% interest payable on March 31, 2016. 2. During 2016, sales revenue totaled $2,070,000, $1,930,000 cash was collected from customers, and $36,000 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?
Explanation / Answer
In addition to sales revenue, revenue and expense amounts related to receivables appearing in Cordova’s 2016 income statement is shown as under:
Interest Revenue
250,000*10%*3/12 = $6,250
100,000*6%*10/12 = $5,000
Interest rate of 6% is calculated as shown below:
Total interest receivable in the year 2015 is $19,750
and interest on 250,000 notes for 9 months at 10% is $18,750
so balance amount is $1,000 which is for 2 months so total is 6,000 and rate of interest is 6,000/100,000 6%
So, interest revenue is $ 11,250.
Bad debt expense is calculated as under:
Bad debt expense reported on Income statement is $ 31,400
Beginning Accounts Receivable 4,26,000 Add: Credit Sales 20,70,000 24,96,000 Less: Cash Collected 19,30,000 Less: Write-off 36,000 Closing AR 5,30,000 Opening allowance for DD 47,000 Add: Bad debt 31,400 Less: Write off 36,000 Ending allowance for DD 42,400 (530,000*8%)Related Questions
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