At December 31, 2001, Muzzillo Imports reported this information on its balance sheet:

Instructions

(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.

(b) Enter the January 1, 2002, balances in Accounts Receivable and Allowance for Doubtful Accounts, post the entries to the two accounts (use T accounts), and determine the balances.

(c) Prepare the journal entry to record bad debts expense for 2002, assuming that aging the accounts receivable indicates that estimated bad debts are $70,000.

(d) Compute the receivables turnover ratio and average collection period.

Transcribed Image Text:

Accounts receivable Less: Allowance for doubtful accounts $1,000,000 60,000 During 2002 the company had the following transactions related to receivables: 1. Sales on account 2. Sales returns and allowances 3. Collections of accounts receivable 4. Write-offs of accounts receivable deemed uncollectible 5. Recovery of bad debts previously written off as uncollectible $2,600,000 40,000 2,300,000 65,000 25,000