challenge #5 accounting for receivable

INSTRUCTIONS FOR CAMPASS CORPORATION AND ITS FISCAL YEAR ENDED DECEMBER 31, 2017

1. USING THE DATA PROVIDED BELOW, PREPARE THE NECESSARY ADJUSTING JOURNAL ENTRIES.

PLEASE INCLUDE APPROPRIATE DATES AND EXPLANATIONS FOR EACH ENTRY.

2. USING THE ATTACHED T-ACCOUNTS FOR THE LEDGER, AND POST THE ADJUSTING JOURNAL ENTRIES.

3. ONCE THE LEDGER ACCOUNT BALANCES ARE UPDATED, PREPARE UPDATED FINANCIAL STATEMENTS.

4. ANSWER QUESTIONS A-H.

ADJUSTING JOURNAL ENTRY INFORMATION:

A. COMPASS CORPORATION USES THE PERCENTAGE OF RECEIVABLES METHOD TO ESTIMATE UNCOLLECTIBLE RECEIVABLES, USING THE ANALYSIS OF RECEIVABLES METHOD. (THE T-ACCOUNT IS PROVIDED TO ASSIST YOU IN YOUR CALCULATIONS, THE OFFICIAL LEDGER IS ON THE FOLLOWING PAGE.)

COMPASS CORPORATION

SCHEDULE OF ACCOUNTS RECEIVABLE BY AGE

FOR THE YEAR ENDED DECEMBER 31, 2017

A/R AGED CATEGORY -- TOTAL AMOUNT -- PERCENT UNCOLLECTIBLE -- DOLLARS UNCOLLECTIBLE

NOT PAST DUE --40,000 -- 2% -- 800

1-30 DAYS PAST DUE -- 17,250 -- 4% -- 690

31-60 DAYS PAST DUE -- 10,100 -- 10% -- 1,010

61-90 DAYS PAST DUE -- 5,000 -- 35% -- 1,750

OVER 90 DAYS PAST DUE -- 2,500 -- 50% -- 1,250

TOTAL 74,850-----5,500

ALLOWANCE FOR DOUBTFUL ACCOUNTS

1,200 UNADJ. BAL.

4,300

5,500

B. PREPARE THE ADJUSTING JOURNAL ENTRY TO RECORD THE ACCRUAL OF INTEREST AS OF 12/31/2017 FOR NOTE RECEIVABLE #1 BASED ON THE FOLLOWING INFORMATION:

ISSUED DATE OF NOTE = 10/2/2017

TERM OF NOTE, IN DAYS = 120

# DAYS TO ACCRUE INTEREST = 90

FACE AMOUNT OF NOTE = $40,000

ANNUAL INTEREST RATE = 6%

ACCRUED INTEREST THROUGH 12/31 = 600

TOTAL INTEREST ON NOTE = 800

1. PREPARE THE REQUIRED JOURNAL ENTRIES

A.

B.

2. POST ADJUSTING ENTRIES A) AND C) AND UPDATE BALANCES IN THE T-ACCOUNTS

3. COMPLETE FINANCIAL STATEMENTS

4. QUESTIONS:

A) WHAT IS THE AMOUNT USED IN THE ADJUSTMENT TO RECORD THE UNCOLLECTIBLE RECEIVABLES IN 1A)

B) ASSUMING THAT COMPASS CORPORATION USES THE PERCENTAGE OF SALES METHOD TO ESTIMATE HE BAD DEBTS, WHAT AMOUNT WOULD BE USED IN THE ADJUSTING JOURNAL ENTRY TO RECORD THE UNCOLLECTIBLE RECEIVABLES BASED ON THE INFORMATION BELOW

COMPASS CORPORATION

NET CREDIT SALES METHOD

FOR THE YEAR ENDED DECEMBER 31, 2017

INFORMATION REGARDING SALES FOR YEAR ENDED DECEMBER 31, 2017:

NET CREDIT SALES FOR THE YEAR = 630,000

ESTIMATED % OF UNCOLLECTIBLE SALES = 0.75%

ESTIMATED BAD DEBTS AT 12/31/2017 = 4,725

C) IF THE COMPANY HAD USED THE PERCENTAGE OF SALES METHOD INSTEAD OF THE PERCENTAGE RECEIVABLES METHOD WHEN PREPARING THE FINANCIAL STATEMENTS, HOW WOULD IT EFFECT THE FOLLOWING:

+/-/ N/A --- AMOUNT

TOTAL REVENUE

TOTAL EXPENSES

NET INCOME

TOTAL ASSETS

TOTAL LIABILITIES

STOCKHOLDERS' EQUITY

D) WHAT IS THE DUE DATE OF THE NOTE RECEIVABLE

E) WHAT IS THE MATURITY VALUE OF THE NOTE RECEIVABLR

F) WHAT IS THE JOURNAL ENTRY THE COMPANY WILL RECORD WHEN PAYMENT ON THE NOTE RECEIVABLE IS RECEIVED IN FULL ON ITS DUE DATE

DESCRIPTION -- DEBIT -- CREDIT

G) CALCULATE THE FOLLOWING RATIOS:

ACCOUNTS RECEIVABLE TURNOVER = NET SALES/ AVERAGE ACCOUNTS RECEIVABLE, NET=__/___=___/____=TIMES

DAYS' SALES IN RECEIVABLES= ENDING ACCOUNTS RECEIVABLE, NET/ NET SALES/365=__/__=__/__=DAYS

H) WHAT CONCLUSIONS CAN YOU DRAW ABOUT THE COLLECTION OF RECEIVABLES BY COMPASS CORPORATION BASED ON THE RATIO CALCULATIONS YOU MADE IN G) ABOVE