On January 1, 2021, the general ledger of ACME Fireworks includes the following account balances:Accounts Debit CreditCash $ 25,100Accounts Receivable 46,200Allowance for Uncollectible Accounts $ 4,200Inventory 20,000Land 46,000Equipment 15,000Accumulated Depreciation 1,500Accounts Payable 28,500Notes Payable (6%, due April 1, 2022) 50,000Common Stock 35,000Retained Earnings 33,100Totals $152,300 $152,300During January 2021, the following transactions occur:January 2 Sold gift cards totaling $8,000. The cards are redeemable for merchandise within one year of the purchase date.January 6 Purchase additional inventory on account, $147,000.January 15 Firework sales for the first half of the month total $135,000. All of these sales are on account. The cost of the units sold is $73,800.January 23 Receive $125,400 from customers on accounts receivable.January 25 Pay $90,000 to inventory suppliers on accounts payable.January 28 Write off accounts receivable as uncollectible, $4,800.January 30 Firework sales for the second half of the month total $143,000. Sales include $11,000 for cash and $132,000 on account. The cost of the units sold is $79,500.January 31 Pay cash for monthly salaries, $52,000.Required:1. Record each of the transactions listed above.2. Record adjusting entries on January 31.a. Depreciation on the equipment for the month of January is calculated using the straightline method. At the time the equipment was purchased, the company estimated a residual value of $3,000 and a two-year service life.b. At the end of January, $11,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.c. Accrued interest expense on notes payable for January.d. Accrued income taxes at the end of January are $13,000.e. By the end of January, $3,000 of the gift cards sold on January 2 have been redeemed (ignore cost of goods sold).3. Prepare an adjusted trial balance as of January 31, 2021, after updating beginning balances (above) for transactions during January and adjusting entries at the end of January.4. Prepare a multiple-step income statement for the period ended January 31, 2021.5. Prepare a classified balance sheet as of January 31, 2021.6. Record closing entries.7. Analyze the following for ACME Fireworks:a. Calculate the current ratio at the end of January. If the average current ratio for the industry is 1.8, is ACME Fireworks more or less liquid than the industry average?b. Calculate the acid-test ratio at the end of January. If the average acid-test ratio for the industry is 1.5, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?c. Assume the notes payable were due on April 1, 2021, rather than April 1, 2022. Calculate the revised current ratio at the end of January, and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a).
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.
On January 1, 2021, the general ledger of ACME Fireworks includes the following account balances:
Accounts Debit Credit
Cash $ 25,100
Allowance for Uncollectible Accounts $ 4,200
Inventory 20,000
Land 46,000
Equipment 15,000
Accumulated
Accounts Payable 28,500
Notes Payable (6%, due April 1, 2022) 50,000
Common Stock 35,000
Retained Earnings 33,100
Totals $152,300 $152,300
During January 2021, the following transactions occur:
January 2 Sold gift cards totaling $8,000. The cards are redeemable for merchandise within one year of the purchase date.
January 6 Purchase additional inventory on account, $147,000.
January 15 Firework sales for the first half of the month total $135,000. All of these sales are on account. The cost of the units sold is $73,800.
January 23 Receive $125,400 from customers on accounts receivable.
January 25 Pay $90,000 to inventory suppliers on accounts payable.
January 28 Write off accounts receivable as uncollectible, $4,800.
January 30 Firework sales for the second half of the month total $143,000. Sales include $11,000 for cash and $132,000 on account. The cost of the units sold is $79,500.
January 31 Pay cash for monthly salaries, $52,000.
Required:
1. Record each of the transactions listed above.
2. Record
a. Depreciation on the equipment for the month of January is calculated using the straightline method. At the time the equipment was purchased, the company estimated a residual value of $3,000 and a two-year service life.
b. At the end of January, $11,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.
c. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,000.
e. By the end of January, $3,000 of the gift cards sold on January 2 have been redeemed (ignore cost of goods sold).
3. Prepare an adjusted
4. Prepare a multiple-step income statement for the period ended January 31, 2021.
5. Prepare a classified
6. Record closing entries.
7. Analyze the following for ACME Fireworks:
a. Calculate the
b. Calculate the acid-test ratio at the end of January. If the average acid-test ratio for the industry is 1.5, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?
c. Assume the notes payable were due on April 1, 2021, rather than April 1, 2022. Calculate the revised current ratio at the end of January, and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a).
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