The Flatiron Pub provides catering services to local businesses. The following information was available for Flatiron for the years ended December 31, 2014 and 2015.

Flatiron management is preparing for a meeting with its bank concerning renewal of a loan and has collected the following information related to the above balances.
1. The cash reported at December 31, 2015, reflects the following items: petty cash €1,575 and postage stamps €110. The other current assets balance at 12/31/15 includes the checking account balance of €4,000.
2. On November 30, 2015, Flatiron agreed to accept a 6-month, €5,000 note bearing 12% interest, payable at maturity, from a major client in settlement of a €5,000 bill. The above balances do not reflect this transaction.
3. Flatiron factored some accounts receivable at the end of 2015. It transferred accounts totaling €10,000 to Final Factor, Inc. without guarantee (recourse). Final Factor will receive the collections from Flatiron’s customers and will retain 2% of the balances. Final Factor assesses Flatiron a finance charge of 3% on this transfer. However, management has determined that the amount due from the factor has not been recorded and is not included in the balances above.
4. Flatiron wrote off uncollectible accounts with balances of €1,600. On the basis of the latest available information, the 2015 uncollectible accounts are estimated to be 2.5% of accounts receivable.

Accounting

(a) Based on the above transactions, determine the balance for (1) Accounts Receivable and (2) Allowance for Doubtful Accounts at December 31, 2015.

(b) Prepare the current assets section of Flatiron’s statement of financial position at December 31, 2015.
Analysis

(a) Compute Flatiron’s current ratio and accounts receivable turnover for December 31, 2015. Use these measures to analyze Flatiron’s liquidity. The accounts receivable turnover in 2014 was 4.37.

(b) Discuss how the analysis you did above of Flatiron’s liquidity would be affected if Flatiron had transferred the receivables in a secured borrowing transaction.

Principles

What is the conceptual basis for recording bad debt expense based on the percentage-of-receivables at December 31, 2015?

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Cash Accounts receivable Allowance for doubtful accounts 31-Dec-14 2,000 31-Dec-15 1,685 ? ? 46,000 550 Other current assets 8,500 7,925 Current liabilities 37,000 44,600 Total credit sales 205,000 255,000 Collections on accounts receivable 190,000 228,000