The trial balance before adjustment for Slamar Company shows the following balances. Debit Credit Net sales $860,000 Accounts receivable 338,000 Allowance for doubtful accounts $4,240 Consider the following independent situations: 1. To obtain additional cash, Slamar factors without recourse $50,000 of accounts receivable with Pierce Finance. The finance charge is 11% of the amount factored. 2. To obtain a 1-year loan of $75,000, Slamar assigns $80,000 of specific receivable accounts to Milo Financial. The finance charge is 9% of the loan; the cash is received and the accounts turned over to Milo Financial. 3. The company wants to maintain Allowance for Doubtful Accounts at 6% of gross accounts receivable. Instructions a. Using the data above, give the journal entries required to record situations 1–3. b. Discuss how analysis based on the current ratio and the accounts receivable turnover would be affected if Slamar had transferred the receivables in situation 1 using a secured borrowing.
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.
The
| Debit | Credit | |||
| Net sales | $860,000 | |||
| 338,000 | ||||
| Allowance for doubtful accounts | $4,240 |
Consider the following independent situations:
1. To obtain additional cash, Slamar factors without recourse $50,000 of accounts receivable with Pierce Finance. The finance charge is 11% of the amount factored.
2. To obtain a 1-year loan of $75,000, Slamar assigns $80,000 of specific receivable accounts to Milo Financial. The finance charge is 9% of the loan; the cash is received and the accounts turned over to Milo Financial.
3. The company wants to maintain Allowance for Doubtful Accounts at 6% of gross accounts receivable.
Instructions
a. Using the data above, give the
b. Discuss how analysis based on the
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