Question
*The company has a recourse liability of $700 related to a note receivable sold to a bank. During 2019, credit sales (terms, n/EOM) totaled $2,200,000,
*The company has a recourse liability of $700 related to a note receivable sold to a bank.
During 2019, credit sales (terms, n/EOM) totaled $2,200,000, and collections on accounts receivable (unassigned) amounted to $1,900,000. Uncollectible accounts totaling $18,000 from several customers were written off, and a $1,350 accounts receivable previously written off was collected. Additionally, the following transactions relating to Blackmons receivables occurred during the year:
March | 6 | Received payment of $12,460 on a note from Renko Company. The payment included interest income of $460. |
31 | The March bank statement indicated that the transferred note had been paid at maturity. | |
May | 1 | Accepted a 120-day, 13% note from Licata Company in exchange for its account receivable of $4,800. |
18 | Received a $6,900, 90-day, 12% note from Eagle Manufacturing Corporation for a credit sale. | |
June | 2 | Sold both the Licata and Eagle notes with recourse at the bank at 14%. (Assume that Blackmon normally does not sell its notes.) The estimated value of the recourse liability for the Licata and Eagle notes was $650 and $900, respectively. |
July | 1 | Assigned $140,000 of accounts receivable to a finance company. Under the terms of the agreement, Blackmon receives 85% of the value of the accounts assigned, minus a service charge of $5,000, and is charged 1.5% per month on the outstanding loan balance. |
6 | A sales allowance of $2,500 on an assigned account is allowed by Blackmon. | |
13 | A sales return of $800 on an assigned account is granted by Blackmon. | |
31 | Collections of $50,000 are made on assigned accounts. This amount and one months interest are remitted to the finance company. | |
August | 31 | Assigned accounts of $60,000 are collected, and the remainder of the loan is repaid, including interest. |
31 | The August bank statement indicated the Eagle note had been paid. | |
September | 1 | The bank notified Blackmon that Licata defaulted on its note and charges a fee of $25. |
4 | Collected the amount due from Licata. | |
December | 31 | Collected interest of $5,000 on the outstanding notes receivable. |
On December 31, 2019, an aging of the accounts receivable balance indicated the following:
Age | Amount | Estimated Percentage Uncollectible |
Under 30 days | $240,487 | 0.5% |
3160 days | 113,421 | 1.5 |
6190 days | 30,933 | 8.0 |
91240 days | 17,185 | 35.0 |
Over 240 days | 6,874 | 70.0 |
$408,900 |
Required: | |
1. | Prepare the journal entries to record the preceding receivable transactions during 2019 and the necessary adjusting entry on December 31, 2019. Assume a 360-day year for interest calculations. |
2. | Prepare the receivables portion of Blackmons December 31, 2019, balance sheet. |
3. | Next Level Compute Blackmons accounts receivable turnover in days, assuming a 360-day business year. What is your evaluation of its collection policies? |
4. | If Blackmon uses IFRS, what might be the heading of the section for the receivables reported in Requirement 2? |
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