ACTIVITY 59EVALUATING ACCOUNTS RECEIVABLEPurpose:• Analyze trends in Accounts Receivable and the Allowance for Bad Debt accounts.Assume you work in the corporate loan office of Lanford Bank. Chris Ives, owner of CI Manufacturing, Inc.has come to you seeking a loan of $350,000 for new manufacturing equipment to expand his operations.He proposes to use his accounts receivable as collateral for the loan and has provided you with thefollowing financial statements.02Q3(5 in thousands)Income StatementSales revenueCost of goods soldGross profitQ4Operating expensesOperating incomeBalance SheetQ1Accounts receivableAllowance for bad debts.Ratio AnalysisAccounts receivable turnover ratioAllowance as a percentage of sales revenueb.C.d.e.f.Year 7$1,475876599518$.81$ 45823Specific Accounts3.221.56%Year 6$1,589947642487$ 155$38731Examine the trend in each of the following accounts.Sales revenue:In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased).Cost of goods sold:In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased).Operating incomeIn Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased).Accounts receivable:In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased).Allowance for bad debts:In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased).Comment on any unexpected or suspicious observations,4.111.9506Year 5$1,502905597453$ 144$ 374294.021.93 %Compute the Accounts Receivable Turnover ratio and the Allowance as a Percentage of Sales ratiofor each of the three years. Record in the chart above. What information do these ratios reveal?The amount reported for the allowance for bad debts is a(n) (known / estimated) amount so thisamount (can/cannot) be manipulated.Would you feel comfortable granting a loan based on the information above? (Yes/No).If not, what additional information would you request before granting a loan? Explain.Page 183Chapter 6

Accounts receivable are an asset for the firm which are created against the credit sales made to the…

Purpose: Analyze trends in Accounts Receivable and the Allo Assume you work in the corporate loan office of Lanford Bank. Chris Ives, owner of CI Manufacturing, Inc. has come to you seeking a loan of $350,000 for new manufacturing equipment to expand his operations. He proposes to use his accounts receivable as collateral for the loan and has provided you with the following financial statements. 02 (5 in thousands) Income Statement Sales revenue Cost of goods sold Gross profit 23 Operating expenses Operating income Balance Sheet Accounts receivable Allowance for bad debts Q1 Ratio Analysis Accounts receivable turnover ratio Allowance as a percentage of sales revenue 3. b. C. d. e. Year 7 f. $1,475 876 599 518 5.81 $458 23 3.22 1.56% Year 6 $1,589 947 642 482 $ 155 $387 31 Examine the trend in each of the following accounts. Sales revenue: In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased). Cost of goods sold: 4.11 1.9506 Year S $1,502 905 597 453 $ 144 $ 374 29 4.02 1.43% 60 In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased). Operating incomes In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased). Accounts receivable: In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased). Allowance for bad debts: In Year 6 it (increased / decreased), and then in Year 7 it (increased / decreased). Comment on any unexpected or suspicious observations, Compute the Accounts Receivable Turnover ratio and the Allowance as a Percentage of Sales ratio for each of the three years. Record in the chart above. What information do these ratios reveal? The amount reported for the allowance for bad debts is a(n) (known / estimated) amount so this amount (can/cannot) be manipulated. 24 Would you feel comfortable granting a loan based on the information above? (Yes/No). If not, what additional information would you request before granting a loan? Explain.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q