Parrish Inc. Graded HW

At December 31, 2001, Parrish Inc. reported this information on its balance sheet:

Accounts receivable $2,000,000

Less: Allowance for doubtful accounts 120,000

During 2002, the company had the following transactions:

1. Sales on account $5,200,000

2. Sales returns and allowances 80,000

3. Collections of accounts receivables 4,600,000

4. Write-offs of accounts receivable deemed uncollectible 130,000

5. Recovery of bad debts previously written off 50,000 Required:

a. Prepare the journal entries to record each of these five transactions.

b. Prepare the journal entry to record the bad debt expense assuming that the company assumes its bad debts at 2% of net sales.

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

d. Show the impact of these transactions on the 2002 income statement and balance sheet.

e. Compute the receivables turnover ratio and the average collection period for the company for 2002. The average collection period is 75 days in the industry. If you were a banker would you extend a loan to the company, why or why not.