During 2009, Martin's Camera Shop had sales revenue of $170,000, of which $85,000 was on credit. At
Question:
During 2009, Martin's Camera Shop had sales revenue of $170,000, of which $85,000 was on credit.
At the start of 2009, Accounts Receivable showed a $10,000 debit balance, and the Allowance for Doubtful Accounts showed an $800 credit balance. Collections of accounts receivable during 2009 amounted to $68,000.
Data during 2009 follows:
a. On December 31, 2009, an Account Receivable (J. Doe) of $1,500 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.
b. On December 3 1 , 2009. on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.
Required: 1. Give the required journal entries for the two items on December 3 1 . 2009 (end of the accounting period). 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for 2009. Disregard income tax considerations. 3. On the basis of the data available, does the 2 percent rate appear to be reasonable ? Explain.
Required: 1. Determine the accounts receivable turnover ratio and average days sales in receivables for the current year. 2. Explain the meaning of each number.
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