Concept explainers
Using an Aging Schedule to Estimate
Assume you were recently hired by Caffe D’Amore, the company that formulated the world’s first flavored instant cappuccino and now manufactures several lines of flavored cappuccino mixes. Given the company’s tremendous sales growth, Caffe D’Amore’s receivables also have grown. Your job is to evaluate and improve collections of the company’s receivables.
By analyzing collections of accounts receivable over the past five years, you were able to estimate bad debt loss rates for balances of varying ages. To estimate this year’s uncollectible accounts, you jotted down the historical loss rales on the last page of a recent aged listing of outstanding customer balances (see below).
Required:
- 1. Enter the above totals in a spreadsheet and then insert formulas to calculate the total estimated uncollectible balance.
- 2. Prepare the year-end
adjusting journal entry to adjust the Allowance for Doubtful Accounts to the balance you calculated above. Assume the allowance account has an unadjusted credit balance of $8,000. - 3. Of the customer account balances shown above on the last page of the aged listing, which should be your highest priority for contacting and pursuing collection?
- 4. Assume Jumpy Jim’s Coffee account is determined to be uncollectible. Prepare the journal entry to write off the entire account balance.
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Fundamentals Of Financial Accounting
- You are the bookkeeper at a small merchandising firm. You are comparing the income statements from the last three years. You notice that the Purchases Returns and Allowances account (as a percentage of net sales) has been increasing at an alarming rate. If you were a manager, to whom would you speak in the organization to help you understand why so much merchandise is being returned? What types of questions would you ask?arrow_forwardEthics and Revenue Recognition Alan Spalding is CEO of a large appliance wholesaler. Alan is under pressure from Wall Street Analysts to meet his aggressive sales revenue growth projections. Unfortunately, near the end of the year he realizes that sales must dramatically improve if his projections are going to be met. To accomplish this objective, he orders his sales force to contact their largest customers and offer them price discounts if they buy by the end of the year. Alan also offered to deliver the merchandise to a third-party warehouse with whom the customers could arrange delivery when the merchandise was needed. Required: Do you believe that revenue from these sales should be recognized in the current year? Why or why not?arrow_forwardYou are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to resell has escalated during the latter part of this period. Your client, Javonte Gish, mentions that because her business sells perishable goods, she has striven to maintain a FIFO flow of goods. Although sales are good, the increasing cost of inventory has put the business in a tight cash position. Gish has expressed concern regarding the ability of the business to meet income tax obligations. Required Prepare a memorandum that identifies, explains, and justifies the inventory method you recommend that Ms. Gish adopt.arrow_forward
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- A large company has hired your friend. She tells you that her boss has asked customers to sign sales agreements just before year end indicating a sale has been made.The boss told customers that he will give them 30 days (well into the next year) to change their minds. If they do not change their minds they will quickly receive the merchandise. If they do change their minds he promised to cancel their orders, take merchandise back, and cancel the invoices.Your friend has been told by her boss to recognize the sales agreements as revenue this year. Your friend has concerns about recognizing revenue before the merchandise is shipped. She likes the company and wants to keep her job.What do you advise her to do?arrow_forwardUncle Benson SuperMart has been one of the fast growing Caribbean firms for the last five years in terms of sales and profits. The firm has consistently maintained a sales level and profit level above the average for the wholesale industry. Mr. Benson has asked you to explain possible reasons why the firm is having difficulty meeting its payroll and it accounts payable. What would you tell Mr. Benson? Required Explain to Mr. Benson possible reasons why his firm is having difficulty meeting its payroll and it accounts payable.arrow_forwardYou were just hired as the assistant to the Chief Financial Officer (CFO) of Saddleback Specialty Shops, an exclusive specialty chain store company that has thirty retail stores concentrated in Southern California. Among other things, the payment of all invoices is centralized in one department that you will be managing. Your primary responsibility is to maintain the company's high credit rating by paying all bills when they are due and taking advantage of all cash discounts. Janie Saddleback, the former assistant to the CFO, who has been promoted to CFO, is training you in your new duties. She instructs you that you are to continue the practice of preparing all checks "net of discount and date them the last day of the discount period." "BUT" Janie continues, "we always hold the checks at least four days beyond the discount period before mailing them. That way we get another four days of interest on our money. Most of our creditors need our business and don't complain. And if they…arrow_forward
- Plant Universe Ltd (PUL) trades in the buying and selling of flowers and has several branches within your country. Recently the company has seen a rapid increase in demand of its products across all branches and is therefore in need of additional financing to adequately boost its inventory. The corporate banking head of Bank One Ltd is requesting a full set of financial statements to ensure that granting the loan to PUL would be financially feasible during a period when many businesses are facing financial challenges.arrow_forwardCase scenario: You are a newly hired accountant for Sushi Beeber, Inc., a retail company specializing in apparel for small pets. The company would like to expand its apparel line to include sweaters for cats. Sushi Beeber has found several manufacturers that offer competitive prices to ensure cost of goods sold is low. Because the company receives merchandise from different manufacturers and the cat sweaters will be commoditized, the company needs to develop an internal accounting system to keep track of inventory cost. You think that the weighted average cost method may help the company stay up-to-date with the inventory cost as purchase cost changes over time. Your task is to create a spreadsheet that can calculate the inventory cost based on purchases and sales for the month. SEE ATTACHED for Numbers Find the inventory total cost and weighted average cost for the month, i.e., all of the records of data. Enter values for the next eight rows, Row 3 through 10, in the table below. Do…arrow_forwardYou are an assistant in the accounting department of Hasher Electronics, a small electronicsretailer. Hasher has a loan that requires the company to maintain a minimum cash balance of$125,000, as reported on its year-end balance sheet. Although Hasher has struggled in recent years,as of yesterday it looked as though Hasher would be able to meet this requirement. The cash balance in Hasher’s general ledger was $130,000 and the company’s credit manager was expecting toreceive a $30,000 electronic funds transfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loan requirement, so she had delayedmaking payments to Hasher’s suppliers for several days. But in anticipation of receiving the EFT,she decided yesterday to issue checks to suppliers totaling $15,000.It is now the last day of the fiscal year and your supervisor approaches you with a problem.Your big customer had backed out at the last minute, indicating it had “some…arrow_forward
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