Chamberlain Enterprises Inc. reported the following receivables in its December

Question

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2016, year-end balance sheet:

The notes receivable account consists of two notes, a $85,000 note and a $255,000 note. The $85,000 note is dated October 31, 2016, with principal and interest payable on October 31, 2017. The $255,000 note is dated June 30, 2016, with principal and 8% interest payable on June 30, 2017.

During 2017, sales revenue totaled $1,420,000, $1,320,000 cash was collected from customers, and $30,000 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 10% of year-end accounts receivable.

On March 31, 2017, the $255,000 note receivable was discounted at the Bank of Commerce. The bank's discount rate is 10%. Chamberlain accounts for the discounting as a sale.

Not including sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2017 income statement?

What amounts will appear in the 2017 year-end balance sheet for accounts receivable (net)?

Calculate the receivables turnover ratio for 2017. (Round your answer to 1 decimal place.)

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2016, year-end balance sheet:

Explanation / Answer

1.

$255000 * 8% * 3/12 = $5100

$85000 * 10% * 10/12 = $7083

Total interest revenue = $12183

Analysis of accounts receivable
Beginning accounts receivable $290000
Add: Credit sales $1420000
Less: Write offs ($30000)
Less: Cash collections ($1320000)
Ending accounts receivable $360000


Analysis of allowance for uncollectible accounts
Beginning allowance $32000
Add: Bad debt expense 34000**
Less: write offs (30000)
Ending allowance $ 36000**

*(32000 - 30000 - 36000 = $34000)
**($360000 x 10% =$36000)

Loss on sale of note receivable:
$255000 x 8% x 9/12 = $15300

Face amount $255000
Interest to maturity $20400 ($255000 x 8%)
Maturity value $275400
Discount ($6885) ($275400 x 10% x 3/12)
Cash proceeds $268515

Carrying value of note $270300 ($255000 + $15300 interest receivable)
Less: Cash proceeds ($268515)
Loss on sale of note receivable $ $1789

Accounts receivable turnover ratio = $1420000 / ($258000 + $324000)/2

= 4.88 times.

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