BE8-10 During its first year of operations, Fertig Company had credit sales of $

ID: 2563920 • Letter: B

Question

BE8-10 During its first year of operations, Fertig Company had credit sales of $3,000,000, Pre of which $400,000 remained uncollected at year-end. The credit manager estimates that (a) Prepare the journal entry to record the estimated uncollectibles. (Assume an unad- (b) Prepare the current assets section of the balance sheet for Fertig Company, assuming unc $18,000 of these receivables will become uncollectible. (LO justed balance of zero in Allowance for Doubtful Accounts.) that in addition to the receivables it has cash of $90,000, merchandise inventory of 9 $180,000, and supplies of $13,000. (c) Calculate the accounts receivable turnover and average collection period. Assume that average net accounts receivable were $300,000. Explain what these measures tell us.

Explanation / Answer

PART-1) Dr. Bad debt expense $18,000

Cr. Allowance for doubtful accounts 18000

PART-2)

CURRENT ASSETS

Cash

90,000

Account Receivable

400,000

Minus: Allowance for doubtful accounts

18,000

382,000

Merchandise inventory

180,000

Prepaid expenses

13,000

PART-3)

Receivables turnover = 7.85

Average collection period = 46.47

Working:

Receivables turnover =Net credit sales/Average accounts receivable = 7.85340

Average collection period = 365 / 7.85 = 46.47

The receivable turnover are hepful in the measurment of the liquidity of the company. With the average collection period, it can be inferred that the company has an effective credit policy