CC8-1 Accounting for Receivables and Uncollectible Accounts [LO 8-2, LO 8-4] The
ID: 2562619 • Letter: C
Question
CC8-1 Accounting for Receivables and Uncollectible Accounts [LO 8-2, LO 8-4]
The following transactions occurred over the months of September to December at Nicole’s Getaway Spa (NGS).
Sold spa merchandise to Ashley Welch Beauty for $2,250 on account; the cost of these goods to NGS was $1,080.
Sold merchandise to Kelly Fast Nail Gallery for $630 on account; the cost of these goods to NGS was $290.
Sold merchandise to Raea Gooding Wellness for $480 on account; the cost of these goods to NGS was $280.
Received $1,470 from Ashley Welch Beauty for payment on its account.
Prepare journal entries for each of the transactions. Assume a perpetual inventory system. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Estimate the Allowance for Doubtful Accounts required at December 31, assuming the only receivables outstanding at December 31 arise from the transactions listed above. NGS uses the aging of accounts receivable method with the following uncollectible rates: one month, 2%; two months, 5%; three months, 20%; more than three months, 35%.
The Allowance for Doubtful Accounts balance was $56 (credit) before the end-of-period adjusting entry is made. Prepare the journal entry to account for the Bad Debt Expense. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Assume the end of the previous year showed net accounts receivable of $890, and net sales for the current year are $9,900. Calculate the accounts receivable turnover ratio. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
Audrey’s Mineral Spa has an accounts receivable turnover ratio of 12.0 times. How does NGS compare to this competitor?
The following transactions occurred over the months of September to December at Nicole’s Getaway Spa (NGS).
Explanation / Answer
1
DATE
JOURNAL ENTRIES
DEBIT
CREDIT
AMOUNT IN $
AMOUNT IN $
Sep-17
Ashley Welch Beauty
2250.00
To Sales
2250.00
(Being sales done )
Oct'17
Kelly Fast Nail Gallery
630.00
To Sales
630.00
(Being sales done)
Nov'17
Raea Gooding Wellness
480.00
To Sales
480.00
(Being sales done)
Dec'17
Cash/Bank A/c
1470.00
To Ashley Welch Beauty
1470.00
(Being amount received for Sales)
2
Doubtful Debts at the end of December
September
October
November
Total
Sales
(S)
2250.00
630.00
480
3360.00
Less amount received
(A)
-1470.00
0.00
0
-1470.00
Net receivables
(R) = (S) - (A)
780.00
630.00
480.00
1890.00
Rates for doubtful debts
(D)
20%
5%
2%
Doubtful Debts provision
(P) = (R) * (D)
156.00
31.50
9.60
197.10
Allowance for Doubtful Debts as on December 31st is $197.10
3
No Journal Entry Required
4
Turnover
(T)
9900.00
Assets
(A)
890.00
Asset Turnover Ratio
=(T) / (A)
11.12
5
NGS has turnover ratio of 11.12 whereas Audrey has turnover ratio of 12 times.
Asset turnover ratio is indication of assets ability to generate sales. Hence
higher the ratio better is position. Since Audrey's ratio is higher, it has better
sales performance as per asset turnover ratio.
1
DATE
JOURNAL ENTRIES
DEBIT
CREDIT
AMOUNT IN $
AMOUNT IN $
Sep-17
Ashley Welch Beauty
2250.00
To Sales
2250.00
(Being sales done )
Oct'17
Kelly Fast Nail Gallery
630.00
To Sales
630.00
(Being sales done)
Nov'17
Raea Gooding Wellness
480.00
To Sales
480.00
(Being sales done)
Dec'17
Cash/Bank A/c
1470.00
To Ashley Welch Beauty
1470.00
(Being amount received for Sales)
2
Doubtful Debts at the end of December
September
October
November
Total
Sales
(S)
2250.00
630.00
480
3360.00
Less amount received
(A)
-1470.00
0.00
0
-1470.00
Net receivables
(R) = (S) - (A)
780.00
630.00
480.00
1890.00
Rates for doubtful debts
(D)
20%
5%
2%
Doubtful Debts provision
(P) = (R) * (D)
156.00
31.50
9.60
197.10
Allowance for Doubtful Debts as on December 31st is $197.10
3
No Journal Entry Required
4
Turnover
(T)
9900.00
Assets
(A)
890.00
Asset Turnover Ratio
=(T) / (A)
11.12
5
NGS has turnover ratio of 11.12 whereas Audrey has turnover ratio of 12 times.
Asset turnover ratio is indication of assets ability to generate sales. Hence
higher the ratio better is position. Since Audrey's ratio is higher, it has better
sales performance as per asset turnover ratio.
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