The following transactions occurred over the months of September to December at Nicole’s Getaway Spa (NGS).
September Sold spa merchandise to Ashley Welch Beauty for $ 1,800 on account; the cost of these goods to NGS was $ 900. October Sold merchandise to Kelly Fast Nail Gallery for $ 450 on account; the cost of these goods to NGS was $ 200. November Sold merchandise to Raea Gooding Wellness for $ 300 on account; the cost of these goods to NGS was $ 190. December Received $ 1,200 from Ashley Welch Beauty for payment on its account.
Required:
1. Prepare journal entries for each of the transactions. Assume a perpetual inventory system.
2. Estimate the Allowance for Doubtful Accounts required at December 31, assuming the only receivables outstanding at December 31 arise from the transactions listed above. NGS uses the aging of accounts receivable method with the following uncollectible rates: one month, 2%; two months, 5%; three months, 20%; more than three months, 35%.
3. The Allowance for Doubtful Accounts balance was $ 47 (credit) before the end-of-period adjusting entry is made. Prepare the journal entry to account for the Bad Debt Expense.
4. Assume the end of the previous year showed net accounts receivable of $ 800, and net sales for the current year are $ 9,000. Calculate the accounts receivable turnover ratio (round to one decimal place).
5. Audrey’s Mineral Spa has an accounts receivable turnover ratio of 12.0 times. How does NGS compare to this competitor?