I am having trouble with Problem A. How do I find these?

a. What is the difference in accounts receivable turnover and the credit risk ratio under Option A v. Option B? I found A/R turnover but I don't know how to find the risk ratio.

b. Which option may management prefer? Which option may shareholders or regulators prefer? Please discuss

Thanks!

Problem Set A Copeland Company had the following account balances at December 31, 2016, before recording bad debt expense for the year: Unadjusted Trial Balance Accounts receivable $1,400,000 Allowance for uncollectible accounts (credit balance) 22,000 Credit sales for 2016 1,950,000 Ending 12/31/2015 $1,200,000 Balance in Accounts receivable on 1/1/2016 24,000 Balance in Allowance for uncollectible accounts (credit balance) on 1/1/2016 Copeland is considering the following approaches for estimating bad debts for 2016: Option A: Based on 3% of credit sales Option B: Based on an aging of year-end accounts receivable Days 0-30 31-60 61-120 Over 120 Amount Outstanding Estimated % Uncollectible $800,000 300,000 200,000 100,000 $1,400,000 3% 6% 9% 24% $24,000 $18,000 $18,000 $24,000 $84,000 REQUIRED: 1 Do the adjusting journal entry under Option A and Option B. 2 What amounts would be reported on the 12/31/2016 financial statements related to Accounts Receivable unde Make sure to include the effect on the Income Statement, Balance Sheet and Statement of Cash Flows (under 3 What is the difference in accounts receivable turnover and the credit risk ratio under Option A v. Option B? 4 Which option may management prefer? Which option may shareholders or regulators prefer? Please discuss Option A - Adjusting JE Bad Debt Expense Allow. for doubtful accounts $ 58,500 Option B - Adjusting JE Bad Debt Expense Allow. For doubful accounts Option A - Financial Statement Effects Income Statement Bad Debt Expense Balance Sheet Accounts Receivable 58,500 $62,000 $62,000 $ 58,500 $1,400,000 Allowance for Doubtful Accounts Net Accounts Receivable 36,500 $1,363,500 Statement of Cash Flows - Indirect: Statement of Cash Flows - Direct (Cash collected from customers): Statement of Stockholder's Equity Option B - Financial Statement Effects Income Statement Bad Debt Expense Balance Sheet Accounts Receivable Less Allowance for Doubtful Accounts Net Accounts Recievable $62,000 $1,400,000 $84,000 $1,316,000 Statement of Cash Flows - Indirect: Statement of Cash Flows - Direct (Cash collected from customers): Statement of Stockholder's Equity Option A - AR Ratios Turnover Net Credit Sales Avg. Accounts Receivable 1,950,000 1,381,750 1.41 1,950,000 1,358,000 1.44 CR Ratio Option B - AR Ratios Turnover CR Ratio Discussion Net Credit Sales Avg, Accounts Receivable debt expense for the year: Accounts Receivable under Option A and Option B? ment of Cash Flows (under the Direct AND Indirect Method), and the Statement of Stockholders' Equity. Option A v. Option B? s prefer? Please discuss Allowance 22,000 58,500 36,500 258.64 254.19 Problem Set B You are the accountant for Madie Corporation, a manufacturer of jets. On January 1, 2013 Madie Corporation sold a new Lear Jet to a customer, Animal, Inc. Animal, Inc. did not have the cash upfront and therefore opted to issue a note to Madie Corporation as payment for the jet. The note contained terms for Animal, Inc. (the customer) to pay interest semiannually on June 30 and December 31. Portions of the amortization schedule appear below: Discount Cash or Effective Carrying Payment Interest Premium Interest Value Payment Amortiza tion 1-Jan 30-Jun 31-Dec 6/30/2014 12/31/2014 6/30/2015 12/31/2015 1 2 3 4 5 6 38 39 40 320,000 320,000 320,000 320,000 320,000 320,000 320,000 320,000 320,000 331,364 331,932 332,528 333,155 333,813 334,503 389,107 392,562 396,191 11,364 11,932 12,528 13,155 13,813 14,503 69,107 72,562 76,191 6,627,273 6,638,637 6,650,569 6,663,097 6,676,252 6,690,065 6,704,568 7,851,247 7,923,809 8,000,000 REQUIRED: 1. What is the face value of the note? 8,000,000 6,627,273 2. What was the initial selling price of the Lear Jet? 3. Did the note indicate a premium or discount? Discount 4. What is the term to maturity in years? 20 years 5. What is the stated annual interest rate? 8% 6. What is the effective (market) annual interest rate? 10% 7. Do the journal entry for the note received by Madie Corporation on January 1, 2013. Notes Receivable 8. Do the journal entry for the first interest payment received on June 30, 2013. Cash Discount on Notes Recei 9. Assuming Madie Corporation's fiscal year end is September 30, do the adjusting journal entry for September 30, 2013. Cash Notes Receivable 10. If the customer repaid the note at 95 on January 1, 2016 (after the recording and payment of interest on Decem n as payment for the jet. nd December 31. $6,627,273.09 $1,372,726.91 8,000,000 Cash Discount Notes Reciveable 6,627,273 1,372,727 320,000 11,364 Interest Revenue 331,364 y for September 30, 2013. 160,000 5,966 Interest Revenue ment of interest on December 31, 2015), would Madie record a gain or loss? ###