Lincraft Corp. reports a current ratio of 3-to-1 in its 20X2 financial statements. The statement of financial position shows current assets of $3,140,500 and current liabilities of $1,064,100. Lincraft has accounts receivable of $1,299,300. The company transfers $1,002,000 of these accounts receivable to a financial institution. There are $35,200 of bad debts associated with these accounts receivable, an amount that is already in the allowance for doubtful accounts. Proceeds of $898,250 are received from the transfer. The transfer is on a non-notification basis, which means that the customers pay Lincraft and Lincraft then remit the cash to the financial institution. The customers pay $946,000 to Lincraft on schedule, $35,200 is written off to the allowance at the appropriate time, and the cash remittance is forwarded to the financial institution. Required: 1. Record all journal entries for the sequence of events assuming: a. The transfer is recorded as a sale/derecognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Lincraft Corp. reports a current ratio of 3-to-1 in its 20X2 financial statements. The statement of financial position shows current assets of $3,140,500 and current liabilities of $1,064,100. Lincraft has accounts receivable of $1,299,300. The company transfers $1,002,000 of these accounts receivable to a financial institution. There are $35,200 of bad debts associated with these accounts receivable, an amount that is already in the allowance for doubtful accounts. Proceeds of $898,250 are received from the transfer. The transfer is on a non-notification basis, which means that the customers pay Lincraft and Lincraft then remit the cash to the financial institution. The customers pay $946,000 to Lincraft on schedule, $35,200 is written off to the allowance at the appropriate time, and the cash remittance is forwarded to the financial institution. Required: 1. Record all journal entries for the sequence of events assuming: a. The transfer is recorded as a sale/derecognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Bad Debts

At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.

Accounts Receivable

The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.

Question

Lincraft Corp. reports a current ratio of 3-to-1 in its 20X2 financial statements. The statement of financial position shows current assets
of $3,140,500 and current liabilities of $1,064,100. Lincraft has accounts receivable of $1,299,300. The company transfers $1,002,000
of these accounts receivable to a financial institution. There are $35,200 of bad debts associated with these accounts receivable, an
amount that is already in the allowance for doubtful accounts. Proceeds of $898,250 are received from the transfer. The transfer is on
a non-notification basis, which means that the customers pay Lincraft and Lincraft then remit the cash to the financial institution. The
customers pay $946,000 to Lincraft on schedule, $35,200 is written off to the allowance at the appropriate time, and the cash
remittance is forwarded to the financial institution.
Required:
1. Record all journal entries for the sequence of events assuming:
a. The transfer is recorded as a sale/derecognition. (If no entry is required for a transaction/event, select "No journal entry required"
in the first account field.)
View transaction list
1
Record the $1,002,000 transfer of receivables to a
financial institution. There are $35,200 of bad debts
associated with these accounts receivable and proceeds
of $898,250 are received from the transfer.
2 Record the $946,000 cash remittance is forwarded to the
financial institution.
X
1. There
nd
Credit

View transaction list
1 Record the $946,000 note payable signed on the
$898,250 received from the transfer.
2 Record the $946,000 cash collected from customers.
3 Record the $946,000 repayment of note payable.
4 Record the interest expense on the note.
5
Record the write off of accounts receivable.
Note :
= journal entry has been entered
Record entry
Clear entry
Sale/derecognition
Borrowing
X
Current Ratio
rom the
Credit
View general journal
2. Calculate the current ratio, after the initial entry for the transfer, recorded as a sale/derecognition and as a borrowing. (Round your
answers to 2 decimal places.)
>

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