*Exercise 7-20 Presented below is information for Waterway Company 1. Beginning-

Question

*Exercise 7-20 Presented below is information for Waterway Company 1. Beginning-of-the-year Accounts Receivable balance was $22,100 2. Net sales (all on account) for the year were $101,300. Waterway does not offer cash discounts 3. Collections on accounts receivable during the year were $86,000 Your answer is partially correct. Try again 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. Cash Due from Factor 2. Loss on Sale of Recelvables Accounts Receivable 3. Accounts Receivable Recourse Liability Your answer is incorrect. Try again Compute Waterway'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 Waterway's liquidity. The turnover ratio last year was 6.1 This is a trend in liquidity

Explanation / Answer

REQ 1: JOURNAL ENTRIES No. Accounts titles and explanations Debit Credit 1 No entry 2 Accounts rececivable Dr. 101300       Sales revenue 101300 (for sale of goods) 3 Cash Account Dr. 86000      Accounts receivable 86000 Req 2 Ending Accounts receivabe: Beginning balance 22100 Add: Net sales 101300 Less: Cash received -86000 Ending Accounts receivabe: 37400 Average Accounts rececivable (37400+22100)/2= $ 29,750 Accounts receivable Turnover = Net sales / Average Accounts receivable ($ 101,300 / 29750 ) = 3.41 times Days to collect Accounts recievable: Number of days*Average Accounts receivable /Net sales 365 *29750 /101300 = 107 days Req 3: As the Accounts receivable turnover ratio is reducing as compared to previous year, This is a negative trend in liquidity

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