On January 1, 2021, the general ledger of 3D Family Fireworks includes the following account balances:

During January 2021, the following transactions occur:
January 2      Provide services to customers for cash, $35,100.
January 6     Provide services to customers on account, $72,400.
January 15   Write off accounts receivable as uncollectible, $1,000.
January 20    Pay cash for salaries, $31,400.
January 22    Receive cash on accounts receivable, $70,000.
January 25    Pay cash on accounts payable, $5,500.
January 30    Pay cash for utilities during January, $13,700.

Required:

1. Record each of the transactions listed above.

2. Record adjusting entries on January 31.

a. At the end of January, $5,000 of accounts receivable are past due, and the company estimates that 20% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected. The note receivable of $20,000 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts.

b. Supplies at the end of January total $700.

c. Accrued interest revenue on notes receivable for January. Interest is expected to be received each December 31.

d. Unpaid salaries at the end of January are $33,500.

3. Prepare an adjusted trial balance as of January 31, 2021, after updating beginning balances (above) for transactions during January (requirement 1) and adjusting entries at the end of January (requirement 2).

4. Prepare an income statement for the period ended January 31, 2021.

5. Prepare a classified balance sheet as of January 31, 2021.

6. Record closing entries.

7. Analyze how well 3D Family Fireworks manages its receivables:

a. Calculate the receivables turnover ratio for the month of January For the numerator, use total services provided to customers on account. If the industry average of the receivables turnover ratios for the month of January is 4.2 times, is the company collecting cash from customers more or less efficiently than other companies in the same industry?

b. Calculate the ratio of Allowance for Uncollectible Accounts to Accounts Receivable at the end of January. Based on a comparison of this ratio to the same ratio at the beginning of January, does the company expect an improvement or worsening in cash collections from customers on credit sales?

Transcribed Image Text:

Accounts Debit Credit Cash $ 23,900 Accounts Receivable 13,600 Allowance for Uncollectible Accounts $ 1,400 Supplies 2,500 Notes Receivable (6%, due in 2 years) 20,000 Land 77,000 Accounts Payable 7,200 Common Stock 96,000 Retained Earnings 32,400 $137,000 Totals $137,000