Warren SM Ch.09 Final

CHAPTER 9RECEIVABLES

EYE OPENERS

1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables.

2. Transactions in which merchandise is sold or services are provided on credit generate accounts receivable.

3. a. Current Assets

b. Investments

4. Examples of other receivables include inter-est receivable, taxes receivable, and receiv-ables from officers or employees.

5. Gallatin Hardware should use the direct write-off method because it is a small busi-ness that has a relatively small number and volume of accounts receivable.

6. The allowance method

7. Contra asset, credit balance

8. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $266,950 ($298,150 – $31,200) in the Current Assets section of the balance sheet. In this case, the amount of the al-lowance for doubtful accounts should be shown separately in a note to the financial statements or in parentheses on the balance sheet. Alternatively, the accounts receivable may be shown at the gross amount of $298,150 less the amount of the allowance for doubtful accounts of $31,200, thus yield-ing net accounts receivable of $266,950.

9. (1) The percentage rate used is excessive in relationship to the volume of accounts

written off as uncollectible; hence, the balance in the allowance is excessive.

(2) A substantial volume of old uncollectible accounts is still being carried in the ac-counts receivable account.

10. An estimate based on analysis of receiv-ables provides the most accurate estimate of the current net realizable value.

11. The advantages of a claim evidenced by a note are that (1) the debt is acknowledged, (2) the payment terms are specified, (3) it is a stronger claim in the event of court action, and (4) it is usually more readily transferable to a creditor in settlement of a debt or to a bank for cash.

12. a. Tucker Company

b. Notes Receivable

13. The interest will amount to $6,300 only if the note is payable one year from the date it was created. The usual practice is to state the interest rate in terms of an annual rate, rather than in terms of the period covered by the note.

14. Debit Accounts ReceivableCredit Notes ReceivableCredit Interest Revenue

15. Cash................................. 10,285Accounts Receivable.. . 10,200Interest Revenue......... 85

($10,200 × 30/360 × 10% = $85)

16. Current Assets

535535

PRACTICE EXERCISES

PE 9–1A

Sept. 19 Cash..................................................................... 100Bad Debt Expense.............................................. 500

Accounts Receivable—Pat Roark................ 600

Dec. 20 Accounts Receivable—Pat Roark..................... 500Bad Debt Expense......................................... 500

20 Cash..................................................................... 500Accounts Receivable—Pat Roark................ 500

PE 9–1B

Feb. 25 Cash..................................................................... 500Bad Debt Expense.............................................. 4,000

Accounts Receivable—Jason Wilcox.......... 4,500

May 9 Accounts Receivable—Jason Wilcox............... 4,000Bad Debt Expense......................................... 4,000

9 Cash..................................................................... 4,000Accounts Receivable—Jason Wilcox.......... 4,000

PE 9–2A

Sept. 19 Cash..................................................................... 100Allowance for Doubtful Accounts..................... 500

Accounts Receivable—Pat Roark................ 600

Dec. 20 Accounts Receivable—Pat Roark..................... 500Allowance for Doubtful Accounts................ 500

20 Cash..................................................................... 500Accounts Receivable—Pat Roark................ 500

PE 9–2B

Feb. 25 Cash..................................................................... 500Allowance for Doubtful Accounts..................... 4,000

Accounts Receivable—Jason Wilcox.......... 4,500

May 9 Accounts Receivable—Jason Wilcox............... 4,000Allowance for Doubtful Accounts................ 4,000

9 Cash..................................................................... 4,000Accounts Receivable—Jason Wilcox.......... 4,000

PE 9–3A

1. $23,750 ($9,500,000 × 0.0025)

Adjusted Balance

2. Accounts Receivable...................................................... $1,400,000Allowance for Doubtful Accounts ($23,750 – $2,250) 21,500Bad Debt Expense.......................................................... 23,750

3. Net realizable value ($1,400,000 – $21,500).................. $1,378,500

PE 9–3B

1. $20,500 ($4,100,000 × 0.005)

Adjusted Balance

2. Accounts Receivable...................................................... $750,000Allowance for Doubtful Accounts ($11,250 + $20,500) 31,750Bad Debt Expense.......................................................... 20,500

3. Net realizable value ($750,000 – $31,750)..................... $718,250

PE 9–4A

1. $26,250 ($24,000 + $2,250)

Adjusted Balance

2. Accounts Receivable...................................................... $1,400,000Allowance for Doubtful Accounts................................. 24,000Bad Debt Expense.......................................................... 26,250

3. Net realizable value ($1,400,000 – $24,000).................. $1,376,000

PE 9–4B

1. $18,750 ($30,000 – $11,250)

Adjusted Balance

2. Accounts Receivable...................................................... $750,000Allowance for Doubtful Accounts................................. 30,000Bad Debt Expense.......................................................... 18,750

3. Net realizable value ($750,000 – $30,000)..................... $720,000

PE 9–5A

1. The due date for the note is July 11, determined as follows:

March................................................................ 18 days (31 – 13) April................................................................... 30 daysMay................................................ 31 daysJune.................................................................. 30 daysJuly................................................ 11 days

Total.............................................................. 120 days

2. $206,000 [$200,000 + ($200,000 × 9% × 120/360)]

3. July 11 Cash.................................................................. 206,000Notes Receivable........................................ 200,000Interest Revenue........................................ 6,000

PE 9–5B

1. The due date for the note is October 23, determined as follows:

September........................................................ 7 days (30 – 23) October............................................................. 23 days Total.............................................................. 30 days

2. $40,200 [$40,000 + ($40,000 × 6% × 30/360)]

3. Oct. 23 Cash.................................................................. 40,200Notes Receivable........................................ 40,000Interest Revenue........................................ 200

EXERCISES

Ex. 9–1

Accounts receivable from the U.S. government are significantly different from re-ceivables from commercial aircraft carriers such as Delta and United. Thus, Boe-ing should report each type of receivable separately. In the December 31, 2007, filing with the Securities and Exchange Commission, Boeing reports the receiv-ables together on the balance sheet, but discloses each receivable separately in a note to the financial statements.

Ex. 9–2

a. MGM Mirage: 19.9% ($90,024,000 ÷ $452,945,000)

b. Johnson & Johnson: 1.8% ($160,000,000 ÷ $8,872,000,000)

c. Casino operations experience greater bad debt risk, since it is difficult to control the creditworthiness of customers entering the casino. In addition, individuals who may have adequate creditworthiness could overextend them-selves and lose more than they can afford if they get caught up in the excite-ment of gambling. In contrast, Johnson & Johnson’s customers are primarily other businesses such as grocery store chains.

Ex. 9–3

Feb. 23 Accounts Receivable—Dr. Judith Salazar......... 41,500Sales................................................................ 41,500

23 Cost of Merchandise Sold................................... 22,300Merchandise Inventory.................................. 22,300

May 10 Cash...................................................................... 10,000Bad Debt Expense............................................... 31,500

Accounts Receivable—Dr. Judith Salazar.... 41,500

Dec. 2 Accounts Receivable—Dr. Judith Salazar......... 31,500Bad Debt Expense.......................................... 31,500

2 Cash...................................................................... 31,500Accounts Receivable—Dr. Judith Salazar.... 31,500

Ex. 9–4

Jan. 18 Accounts Receivable—Wings Co. ................... 13,200Sales............................................................... 13,200

18 Cost of Merchandise Sold................................. 9,500Merchandise Inventory................................. 9,500

Mar. 31 Cash..................................................................... 5,000Allowance for Doubtful Accounts..................... 8,200

Accounts Receivable—Wings Co. .............. 13,200

Sept. 3 Accounts Receivable—Wings Co. ................... 8,200Allowance for Doubtful Accounts................ 8,200

3 Cash..................................................................... 8,200Accounts Receivable—Wings Co. .............. 8,200

Ex. 9–5

a. Bad Debt Expense.......................................................... 8,375Accounts Receivable—Nick Wadle......................... 8,375

b. Allowance for Doubtful Accounts................................. 8,375Accounts Receivable—Nick Wadle......................... 8,375

Ex. 9–6

a. $23,500 ($9,400,000 × 0.0025)

b. $24,800 ($36,000 – $11,200)

c. $47,000 ($9,400,000 × 0.005)

d. $55,500 ($49,500 + $6,000)

Ex. 9–7

Account Due Date Number of Days Past Due

AAA Pickup Shop May 30 62 (1 + 30 + 31)Best Auto July 14 17 (31 – 14)Downtown Repair March 18 135 (13 + 30 + 31 + 30 + 31)Luke’s Auto Repair June 1 60 (29 + 31)New or Used Auto June 18 43 (12 + 31)Sally’s April 12 110 (18 + 31 + 30 + 31)Trident Auto May 31 61 (30 + 31)Washburn Repair & Tow March 13 140 (18 + 30 + 31 + 30 + 31)

Ex. 9–8

a. Customer Due Date Number of Days Past Due

Cottonwood Industries July 6 147 days (25 + 31 + 30 + 31 + 30)Fargo Company September 17 74 days (13 + 31 + 30)Garfield Inc. October 17 44 days (14 + 30)Sadler Company November 2 28 daysTwitty Company December 23 Not past due

b.

A B C D E F G1 Aging-of-Receivables Schedule2 November 303 Days Past Due

4 Customer BalanceNot Past

Due 1–30 31–60 61–90Over

905 Abbott Brothers Inc. 2,000 2,0006 Alonso Company 1,500 1,500

21 Ziel Company 5,000 5,000

22 Subtotals 807,500 475,000 180,000 78,500 42,300 31,70023 Cottonwood Industries 14,300 14,30024 Fargo Company 17,700 17,70025 Garfield Inc. 8,500 8,50026 Sadler Company 10,000 10,00027 Twitty Company 25,000 25,000 28 Totals 883,000 500,000 190,000 87,000 60,000 46,000

Ex. 9–9

Days Past Due Not Past Over

Balance Due 1–30 31–60 61–90 90

Total receivables 883,000 500,000 190,000 87,000 60,000 46,000Percentageuncollectible 1% 6% 20% 35% 50% Allowance forDoubtful Accounts 77,800 5,000 11,400 17,400 21,000 23,000

Ex. 9–10

Nov. 30 Bad Debt Expense.............................................. 61,625Allowance for Doubtful Accounts................ 61,625

Uncollectible accounts estimate.($77,800 – $16,175)

Ex. 9–11

EstimatedUncollectible Accounts

Age Interval Balance Percent Amount

Not past due................................................ $567,000 ½% $ 2,8351–30 days past due.................................... 58,000 3 1,74031–60 days past due................................... 29,000 7 2,03061–90 days past due................................... 20,500 15 3,07591–180 days past due................................. 15,000 40 6,000Over 180 days past due............................. 10,500 75 7,875

Total....................................................... $700,000 $23,555

Ex. 9–12

2010Dec. 31 Bad Debt Expense.............................................. 27,700

Allowance for Doubtful Accounts................ 27,700Uncollectible accounts estimate.

($23,555 + $4,145)

Ex. 9–13

a. Jan. 24 Bad Debt Expense................................................. 3,000Accounts Receivable—J. Huntley.................. 3,000

Feb. 17 Cash....................................................................... 1,500Bad Debt Expense................................................. 2,500

Accounts Receivable—Karlene Solomon...... 4,000

May 29 Accounts Receivable—J. Huntley....................... 3,000Bad Debt Expense........................................... 3,000

29 Cash....................................................................... 3,000Accounts Receivable—J. Huntley.................. 3,000

Nov. 30 Bad Debt Expense................................................. 6,100Accounts Receivable—Don O’Leary.............. 2,000Accounts Receivable—Kim Snider................ 1,500Accounts Receivable—Jennifer Kerlin.......... 900Accounts Receivable—Tracy Lane................ 1,250Accounts Receivable—Lynn Fuqua............... 450

Dec. 31 No entry

b. Jan. 24 Allowance for Doubtful Accounts........................ 3,000Accounts Receivable—J. Huntley.................. 3,000

Feb. 17 Cash....................................................................... 1,500Allowance for Doubtful Accounts........................ 2,500

Accounts Receivable—Karlene Solomon...... 4,000

May 29 Accounts Receivable—J. Huntley....................... 3,000Allowance for Doubtful Accounts.................. 3,000

29 Cash....................................................................... 3,000Accounts Receivable—J. Huntley.................. 3,000

Nov. 30 Allowance for Doubtful Accounts........................ 6,100Accounts Receivable—Don O’Leary.............. 2,000Accounts Receivable—Kim Snider................ 1,500Accounts Receivable—Jennifer Kerlin.......... 900Accounts Receivable—Tracy Lane................ 1,250Accounts Receivable—Lynn Fuqua............... 450

Dec. 31 Bad Debt Expense................................................. 14,625Allowance for Doubtful Accounts.................. 14,625

Uncollectible accounts estimate.($975,000 × 1½% = $14,625)

Ex. 9–13 Concluded

c. Bad debt expense under:Allowance method.......................................................................... $14,625Direct write-off method ($3,000 + $2,500 – $3,000 + $6,100)....... 8,600 Difference ($14,625 – $8,600)......................................................... $ 6,025

Lights of the West Company’s income would be $6,025 higher under the direct write-off method than under the allowance method.

Ex. 9–14

a. Mar. 13 Bad Debt Expense......................................... 4,200Accounts Receivable—B. Hall................ 4,200

Apr. 19 Cash............................................................... 3,000Bad Debt Expense......................................... 4,500

Accounts Receivable—M. Rainey.......... 7,500

July 9 Accounts Receivable—B. Hall..................... 4,200Bad Debt Expense................................... 4,200

9 Cash............................................................... 4,200Accounts Receivable—B. Hall................ 4,200

Nov. 23 Bad Debt Expense......................................... 7,005Accounts Receivable—Rai Quinn.......... 1,200Accounts Receivable—P. Newman........ 750Accounts Receivable—Ned Berry.......... 2,900Accounts Receivable—Mary Adams...... 1,675Accounts Receivable—Nicole Chapin.. . 480

Dec. 31 No entry

Ex. 9–14 Continued

b. Mar. 13 Allowance for Doubtful Accounts................ 4,200Accounts Receivable—B. Hall................ 4,200

Apr. 19 Cash............................................................... 3,000Allowance for Doubtful Accounts................ 4,500

Accounts Receivable—M. Rainey.......... 7,500

July 9 Accounts Receivable—B. Hall..................... 4,200Allowance for Doubtful Accounts.......... 4,200

9 Cash............................................................... 4,200Accounts Receivable—B. Hall................ 4,200

Nov. 23 Allowance for Doubtful Accounts................ 7,005Accounts Receivable—Rai Quinn.......... 1,200Accounts Receivable—P. Newman........ 750Accounts Receivable—Ned Berry.......... 2,900Accounts Receivable—Mary Adams...... 1,675Accounts Receivable—Nicole Chopin... 480

Dec. 31 Bad Debt Expense......................................... 28,705Allowance for Doubtful Accounts.......... 28,705

Uncollectible accounts estimate.($29,200 – $495)

Computations

Aging Class Receivables(Number of Days Balance on Estimated Doubtful Accounts Past Due) December 31 Percent Amount

0–30 days $200,000 2% $ 4,00031–60 days 75,000 8 6,00061–90 days 24,000 25 6,00091–120 days 9,000 40 3,600More than 120 days 12,000 80 9,600

Total receivables $320,000 $29,200

Estimated balance of allowance account from aging schedule...... $29,200Unadjusted credit balance of allowance account............................. 495 *Adjustment........................................................................................... $28,705

*$12,000 – $4,200 – $4,500 + $4,200 – $7,005 = $495

Ex. 9–14 Concluded

c. Bad debt expense under:Allowance method.......................................................................... $28,705Direct write-off method ($4,200 + $4,500 – $4,200 + $7,005)....... 11,505 Difference........................................................................................ $ 17,200

Burrito’s income would be $17,200 higher under the direct method than under the allowance method.

Ex. 9–15

$379,250 [$390,500 + $50,000 – ($3,500,000 × 1¾%)]

Ex. 9–16

a. $411,500 [$425,000 + $60,000 – ($4,200,000 × 1¾%)]

b. $24,750 [($61,250 – $50,000) + ($73,500 – $60,000)]

Ex. 9–17

a. Bad Debt Expense.......................................................... 35,000Accounts Receivable—L. Hearn.............................. 10,000Accounts Receivable—Carrie Murray..................... 9,500Accounts Receivable—Kelly Salkin........................ 13,100Accounts Receivable—Shana Wagnon................... 2,400

b. Allowance for Doubtful Accounts................................. 35,000Accounts Receivable—L. Hearn.............................. 10,000Accounts Receivable—Carrie Murray..................... 9,500Accounts Receivable—Kelly Salkin........................ 13,100Accounts Receivable—Shana Wagnon................... 2,400

Bad Debt Expense.......................................................... 42,000Allowance for Doubtful Accounts............................ 42,000

Uncollectible accounts estimate.($2,400,000 × 1¾% = $42,000)

c. Net income would have been $7,000 higher in 2010 under the direct write-off method, because bad debt expense would have been $7,000 higher under the al-lowance method ($42,000 expense under the allowance method vs. $35,000 ex-pense under the direct write-off method).

Ex. 9–18

a. Bad Debt Expense.......................................................... 25,000Accounts Receivable—Eva Fry................................ 6,500Accounts Receivable—Lance Landau.................... 11,200Accounts Receivable—Marcie Moffet..................... 3,800Accounts Receivable—Jose Reis............................ 3,500

b. Allowance for Doubtful Accounts................................. 25,000Accounts Receivable—Eva Fry................................ 6,500Accounts Receivable—Lance Landau.................... 11,200Accounts Receivable—Marcie Moffet..................... 3,800Accounts Receivable—Jose Reis............................ 3,500

Bad Debt Expense.......................................................... 27,800Allowance for Doubtful Accounts............................ 27,800

Uncollectible accounts estimate. ($25,300 + $2,500)

Computations

Aging Class Receivables(Number of Days Balance on Estimated Doubtful Accounts Past Due) December 31 Percent Amount

0–30 days $480,000 1% $ 4,80031–60 days 100,000 3 3,00061–90 days 40,000 20 8,00091–120 days 25,000 30 7,500More than 120 days 5,000 40 2,000

Total receivables $650,000 $25,300

Unadjusted debit balance of Allowance for DoubtfulAccounts ($22,500 – $25,000).................................... $ 2,500

Estimated balance of Allowance for DoubtfulAccounts from aging schedule................................. 25,300

Adjustment...................................................................... $27,800

Ex. 9–19

Due Date Interest

a. Nov. 30 $140 [$10,500 × 0.08 × (60/360)]

b. Dec. 28 600 [$18,000 × 0.10 × (120/360)]

c. Aug. 28 360 [$12,000 × 0.12 × (90/360)]

d. May 5 225 [$15,000 × 0.09 × (60/360)]

e. July 22 150 [$9,000 × 0.10 × (60/360)]

Ex. 9–20

a. July 14 (15 + 31 + 30 + 14)

b. $40,600 [($40,000 × 0.06% × 90/360) + $40,000]

c. (1) Notes Receivable..................................................... 40,000Accounts Rec.—South Bay Interior Decorators 40,000

(2) Cash.......................................................................... 40,600Notes Receivable................................................ 40,000Interest Revenue................................................. 600

Ex. 9–21

1. Sale on account.

2. Cost of merchandise sold for the sale on account.

3. A sale return or allowance.

4. Cost of merchandise returned.

5. Note received from customer on account.

6. Note dishonored and charged maturity value of note to customer’s account re-ceivable.

7. Payment received from customer for dishonored note plus interest earned after due date.

Ex. 9–22

2009Dec. 13 Notes Receivable................................................ 84,000

Accounts Receivable—Penick Clothing &Bags Co. ................................................... 84,000

31 Interest Receivable............................................. 378Interest Revenue........................................... 378

Accrued interest ($84,000 × 0.09 × 18/360 = $378).

31 Interest Revenue................................................. 378Income Summary.......................................... 378

2010Mar. 12 Cash..................................................................... 85,890

Notes Receivable.......................................... 84,000Interest Receivable....................................... 378Interest Revenue........................................... 1,512*

*$84,000 × 0.09 × 72/360

Ex. 9–23

July 8 Notes Receivable............................................. 120,000Accounts Receivable—Mystic Mermaid

Company.................................................. 120,000

Oct. 6 Accounts Receivable—Mystic MermaidCompany.................................................. 122,400

Notes Receivable........................................ 120,000Interest Revenue........................................ 2,400

Nov. 5 Cash.................................................................. 123,420Accounts Receivable—Mystic Mermaid

Company.................................................. 122,400Interest Revenue........................................ 1,020*

*$122,400 × 0.10 × 30/360

Ex. 9–24

Mar. 1 Notes Receivable................................................ 30,000Accounts Receivable—Bradshaw Co. ........ 30,000

18 Notes Receivable................................................ 25,000Accounts Receivable—Soto Co. ................. 25,000

Apr. 30 Accounts Receivable—Bradshaw Co. ............. 30,300Notes Receivable.......................................... 30,000Interest Revenue........................................... 300*

*($30,000 × 6% × 60/360)

May 17 Accounts Receivable—Soto Co. ...................... 25,375Notes Receivable.......................................... 25,000Interest Revenue........................................... 375*

*($25,000 × 9% × 60/360)

July 29 Cash..................................................................... 30,906Accounts Receivable—Bradshaw Co. ........ 30,300Interest Revenue........................................... 606*

*(30,300 × 0.08 × 90/360)

Aug. 23 Allowance for Doubtful Accounts..................... 25,375Accounts Receivable—Soto Co. ................. 25,375

Ex. 9–25

1. The interest receivable should be reported separately as a current asset. It should not be deducted from notes receivable.

2. The allowance for doubtful accounts should be deducted from accounts receiv-able.

A corrected partial balance sheet would be as follows:

JENNETT COMPANYBalance Sheet

December 31, 2010

Assets

Current assets:Cash............................................................................. $ 95,000Notes receivable......................................................... 250,000Accounts receivable................................................... $398,000

Less allowance for doubtful accounts................ 36,000 362,000Interest receivable...................................................... 15,000

Appendix Ex. 9–26

a. $61,800 [$60,000 + ($60,000 × 9% × 120/360)]

b. 60 days [120 – (24 + 30 + 6)]

c. $1,236 ($61,800 × 12% × 60/360)

d. $60,564 ($61,800 – $1,236)

e. Cash............................................................................. 60,564Interest Revenue................................................... 564Notes Receivable.................................................. 60,000

Appendix Ex. 9–27

Mar. 1 Notes Receivable.................................................. 40,000Accounts Receivable—Gymboree Company 40,000

31 Cash....................................................................... 40,120*Notes Receivable............................................. 40,000Interest Revenue.............................................. 120

*ComputationsMaturity value

$40,000 + ($40,000 × 8% × 90/360).................. $40,800Discount ($40,800 × 10% × 60/360)..................... 680 Proceeds............................................................... $40,120

May 30 Accounts Receivable—Gymboree Company..... 41,000*Cash.................................................................. 41,000

*$40,800 + $200

June 29 Cash....................................................................... 41,410*Accounts Receivable—Gymboree Company 41,000Interest Revenue.............................................. 410

*$41,000 + ($41,000 × 0.12 × 30/360) = $41,410

Ex. 9–28

a. and b. 2007 2006 Net sales $4,295,400 $3,746,300Accounts receivable $511,900 $516,600Average accounts receivable $514,250 [($511,900 + $516,600)/2] $523,551.5 [($516,600 + $530,503)/2]Accounts receivable turnover 8.4 ($4,295,400/$514,250) 7.2 ($3,746,300/$523,551.5)Average daily sales $11,768.2 ($4,295,400/365) 10,263.8 ($3,746,300/365)Days’ sales in receivables 43.7 ($514,250/$11,768.2) 51.0 ($523,551.5/$10,263.8)

c. The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by increasing from 7.2 to 8.4, a favorable trend. The days’ sales in receivables also indicates an increase in the efficiency of collecting accounts receivable by decreasing from 51.0 to 43.7, also indicating a favorable trend. Before reaching a definitive conclusion, the ratios should be compared with industry averages and similar firms.

Ex. 9–29

a. 2007: 9.0 {$9,001,630/[($996,852 + $1,002,125)/2]}2006: 8.3 {$8,643,438/[($1,002,125 + $1,092,394)/2]}

b. 2007: 40.5 days [($996,852 + $1,002,125)/2] = $999,489; [$999,489/($9,001,630/365)] = 40.5 days2006: 44.2 days [($1,002,125 + $1,092,394)/2] = $1,047,260; [$1,047,260/($8,643,438/365)] = 44.2 days

c. The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by increasing from 8.3 to 9.0, a favorable trend. The number of days’ sales in receivables decreased from 44.2 to 40.5 days, also indicating a favorable trend in collections of receivables. Before reaching a more definitive conclusion, both ratios should be compared with those of past years, industry averages, and similar firms.

Ex. 9–30

a. and b.For the Period Ending

Feb. 3, Jan. 28, 2007 2006

Net sales $10,671 $9,699Accounts receivable $176 $182Average accounts receivable $179 [($176 + $182)/2] $155 [($182 + $128)/2]Accounts receivable turnover 59.6 ($10,671/$179) 62.6 ($9,699/$155)Average daily sales $29.2 ($10,671/365) $26.6 ($9,699/365)Days’ sales in receivables 6.1 ($179/$29.2) 5.8 ($155/$26.6)

c. The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by decreasing from 62.6 to 59.6, an unfavorable trend. The days’ sales in receivables indicates a decrease in the efficiency of collecting accounts receivable by increasing from 5.8 to 6.1, also indicating an unfavorable trend. Before reaching a definitive conclusion, the ratios should be compared with industry averages and similar firms.

Ex. 9–31

a. The average accounts receivable turnover ratios are as follows:

The Limited, Inc.: 61.1 [(62.6 + 59.6)/2]

H.J. Heinz Company: 8.7 [(9.0 + 8.3)/2]

Note: For computations of the individual ratios, see Ex. 9–29 and Ex. 9–30.

b. The Limited has the higher average accounts receivable turnover ratio.

c. The Limited operates a specialty retail chain of stores that sell directly to indi-vidual consumers. Many of these consumers (retail customers) pay with Mas-terCards or VISAs that are recorded as cash sales. In contrast, H.J. Heinz manufactures processed foods that are sold to food wholesalers, grocery store chains, and other food distributors who eventually sell Heinz products to individual consumers. Accordingly, because of the extended distribution chain, we would expect Heinz to have more accounts receivable than The Limited. In addition, we would expect Heinz’s business customers to take a longer period to pay their receivables. Accordingly, we would expect Heinz’s average accounts receivable turnover ratio to be lower than The Limited as shown in (a).

PROBLEMS

Prob. 9–1A

2. 20—June 6 Accounts Receivable—Ian Netti.......................... 1,945

Allowance for Doubtful Accounts.................. 1,945

6 Cash....................................................................... 1,945Accounts Receivable—Ian Netti..................... 1,945

July 19 Allowance for Doubtful Accounts........................ 11,150Accounts Receivable—Rancho Rigging Co. 11,150

Aug. 13 Cash....................................................................... 7,000Allowance for Doubtful Accounts........................ 13,000

Accounts Receivable—Santori Co. ............... 20,000

Sept. 2 Accounts Receivable—Sheryl Capers................ 3,170Allowance for Doubtful Accounts.................. 3,170

2 Cash....................................................................... 3,170Accounts Receivable—Sheryl Capers........... 3,170

Dec. 31 Allowance for Doubtful Accounts........................ 19,090Accounts Receivable—Jacoba Co. ............... 8,390Accounts Receivable—Garcia Co. ................ 2,500Accounts Receivable—Summit Furniture..... 6,400Accounts Receivable—Jill DePuy.................. 1,800

31 Bad Debt Expense................................................. 40,125Allowance for Doubtful Accounts.................. 40,125

Uncollectible accounts estimate. ($42,000 – $1,875)

Prob. 9–1AConcluded1. and 2.

Allowance for Doubtful AccountsJuly 19 11,150 Jan. 1 Balance 40,000Aug. 13 13,000 June 6 1,945Dec. 31 19,090 Sept. 2 3,170

Dec. 31 Unadjusted Balance 1,875Dec. 31 Adjusting Entry 40,125Dec. 31 Adjusted Balance 42,000

Bad Debt ExpenseDec. 31 Adjusting Entry 40,125

3. $918,750 ($960,750 – $42,000)

4. a. $45,000 ($6,000,000 × 0.0075)

b. $46,875 ($45,000 + $1,875)

c. $913,875 ($960,750 – $46,875)

Prob. 9–2A

1.

Customer Due Date Number of Days Past Due

Sun Coast Beauty May 30, 2009 215 days (1 + 30 + 31 + 31 + 30 + 31 + 30 + 31)

Paradise Beauty Store Sept. 15, 2009 107 days (15 + 31 + 30 + 31)Helix Hair Products Oct. 17, 2009 75 days (14 + 30 + 31)Hairy’s Hair Care Oct. 20, 2009 72 days (11 + 30 + 31)Surf Images Nov. 18, 2009 43 days (12 + 31)Oh The Hair Nov. 29, 2009 32 days (1 + 31)Mountain Coatings Dec. 1, 2009 30 daysLasting Images Jan. 9, 2010 Not past due

Prob. 9–2A Concluded

2. and 3.

A B C D E F G H1 Aging of Receivables Schedule2 December 31, 20093 Days Past Due


Due 1–30 31–60 61–90 91–120Over 120

5 Alpha Beauty 20,000 20,0006 Blonde Wigs 11,000 11,000

30 Zahn’s Beauty 2,900 2,900

31 Subtotals 900,000 498,600 217,250 98,750 33,300 29,950 22,15032 Sun Coast Beauty 2,850 2,85033 Paradise Beauty Store 6,050 6,05034 Helix Hair Products 800 80035 Hairy’s Hair Care 2,000 2,00036 Surf Images 700 70037 Oh The Hair 3,500 3,50038 Mountain Coatings 2,250 2,25039 Lasting Images 7,400 7,400

40 Totals 925,550 506,000 219,500 102,950 36,100 36,000 25,00041 Percent uncollectible 2% 4% 10% 15% 35% 80%

42 Estimate of uncollectible accounts 67,210 10,120 8,780 10,295 5,415 12,600 20,000

4. Bad Debt Expense.......................................................... 65,500Allowance for Doubtful Accounts............................ 65,500

Uncollectible accounts estimate. ($67,210 – $1,710)

Prob. 9–3A

1. Bad Debt Expense Increase Balance of

Expense Expense (Decrease) AllowanceActually Based on in Amount Account,

Year Reported Estimate of Expense End of Year

1st $ 1,200 $ 6,500 $5,300 $ 5,3002nd 3,000 8,750 5,750 11,0503rd 13,000 15,000 2,000 13,0504th 17,700 18,000 300 13,350

2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 1/2% of sales. The total write-off of receivables originating in the first year amounted to $6,400 ($1,200 + $1,400 + $3,800), as compared with bad debt expense, based on the percentage of sales, of $6,500. For the sec-ond year, the comparable amounts were $8,600 ($1,600 + $3,000 + $4,000) and $8,750.

Prob. 9–4A

1. (a) (b)Note Due Date Interest Due at Maturity

1. June 23 $216 ($19,200 × 45/360 × 9%)2. Sept. 13 150 ($11,250 × 60/360 × 8%)3. Oct. 30 756 ($43,200 × 90/360 × 7%)4. Dec. 3 300 ($20,000 × 90/360 × 6%)5. Jan. 25 180 ($13,500 × 60/360 × 8%)6. Feb. 14 468 ($21,600 × 60/360 × 13%)

2. Oct. 30 Accounts Receivable.................................... 43,956Notes Receivable..................................... 43,200Interest Revenue...................................... 756

3. Dec. 31 Interest Receivable....................................... 222Interest Revenue...................................... 222

Accrued interest.

$13,500 × 0.08 × 35/360 = $105$21,600 × 0.13 × 15/360 = 117

Total $222

4. Jan. 25 Cash............................................................... 13,680Notes Receivable..................................... 13,500Interest Receivable.................................. 105Interest Revenue...................................... 75*

*$13,500 × 0.08 × 25/360

Feb. 14 Cash............................................................... 22,068Notes Receivable..................................... 21,600Interest Receivable.................................. 117Interest Revenue...................................... 351*

*$21,600 × 0.13 × 45/360

Prob. 9–5A

Mar. 3 Notes Receivable................................................ 72,000Accounts Receivable.................................... 72,000

25 Notes Receivable................................................ 10,000Accounts Receivable.................................... 10,000

May 2 Cash..................................................................... 73,080Notes Receivable.......................................... 72,000Interest Revenue........................................... 1,080



June 23 Cash..................................................................... 10,200Notes Receivable.......................................... 10,000Interest Revenue........................................... 200

30 Cash..................................................................... 25,125Notes Receivable.......................................... 25,000Interest Revenue........................................... 125

July 1 Notes Receivable................................................ 7,500Accounts Receivable.................................... 7,500


Aug. 14 Cash..................................................................... 40,700Notes Receivable.......................................... 40,000Interest Revenue........................................... 700

Prob. 9–6A

20—Jan. 20 Accounts Receivable—Wilding Co. ................. 30,750

Sales............................................................... 30,750


Mar. 3 Notes Receivable................................................ 30,750Accounts Receivable—Wilding Co. ............ 30,750

May 2 Cash..................................................................... 31,160Notes Receivable.......................................... 30,750Interest Revenue........................................... 410

June 10 Accounts Receivable—Foyers.......................... 13,600Sales............................................................... 13,600


15 Notes Receivable................................................ 18,000Cash............................................................... 18,000

20 Cash..................................................................... 13,328Sales Discounts.................................................. 272

Accounts Receivable—Foyers..................... 13,600

July 15 Notes Receivable................................................ 18,000Cash..................................................................... 90

Notes Receivable.......................................... 18,000Interest Revenue........................................... 90*

*($18,000 × 6% × 30/360)

Sept. 13 Cash..................................................................... 18,270Notes Receivable.......................................... 18,000Interest Revenue........................................... 270*

*($18,000 × 9% × 60/360)

13 Accounts Receivable—Rainbow Co. ............... 20,000Sales............................................................... 20,000


Prob. 9–6A Concluded

Oct. 12 Notes Receivable................................................ 20,000Accounts Receivable—Rainbow Co. .......... 20,000

Dec. 11 Accounts Receivable—Rainbow Co. ............... 20,200Notes Receivable.......................................... 20,000Interest Revenue........................................... 200*

*($20,000 × 6% × 60/360)

26 Cash..................................................................... 20,301Accounts Receivable—Rainbow Co. .......... 20,200Interest Revenue........................................... 101*

*($20,200 × 12% × 15/360)

Prob. 9–1B

2. 20—Feb. 24 Cash....................................................................... 7,200

Allowance for Doubtful Accounts........................ 10,800Accounts Receivable—Broudy Co. ............... 18,000

May 3 Accounts Receivable—Irma Alonso.................... 1,725Allowance for Doubtful Accounts.................. 1,725

3 Cash....................................................................... 1,725Accounts Receivable—Irma Alonso.............. 1,725

Aug. 9 Allowance for Doubtful Accounts........................ 3,600Accounts Receivable—Tux Time Co. ............ 3,600

Nov. 20 Accounts Receivable—Pexis Co. ....................... 6,140Allowance for Doubtful Accounts.................. 6,140

20 Cash....................................................................... 6,140Accounts Receivable—Pexis Co. .................. 6,140

Dec. 31 Allowance for Doubtful Accounts........................ 11,950Accounts Receivable—Siena Co. .................. 2,400Accounts Receivable—Kommers Co. ........... 1,800Accounts Receivable—Butte Distributors..... 6,000Accounts Receivable—Ed Ballantyne........... 1,750

31 Bad Debt Expense................................................. 20,985Allowance for Doubtful Accounts.................. 20,985


Prob. 9–1B Concluded

1. and 2.

Allowance for Doubtful AccountsFeb. 24 10,800 Jan. 1 Balance 15,500Aug. 9 3,600 May 3 1,725Dec. 31 11,950 Nov. 20 6,140Dec. 31 Unadjusted Balance 2,985

Dec. 31 Adjusting Entry 20,985Dec. 31 Adj. Balance 18,000

Bad Debt ExpenseDec. 31 Adjusting Entry 20,985

3. $750,375 ($768,375 – $18,000)

4. a. $20,500 ($4,100,000 × 0.005)

b. $17,515 ($20,500 – $2,985)

c. $750,860 ($768,375 – $17,515)

Prob. 9–2B

1.

Customer Due Date Number of Days Past Due

AAA Sports & Flies June 14, 2009 200 days (16 + 31 + 31 + 30 + 31 + 30 + 31)Blackmon Flies Aug. 30, 2009 123 days (1 + 30 + 31 + 30 + 31)Charlie’s Fish Co. Sept. 30, 2009 92 days (31 + 30 + 31)Firehole Sports Oct. 17, 2009 75 days (14 + 30 + 31)Green River Sports Nov. 7, 2009 54 days (23 + 31)Smith River Co. Nov. 28, 2009 33 days (2 + 31)Wintson Company Dec. 1, 2009 30 daysWolfe Bug Sports Jan. 6, 2010 Not past due


2. and 3.

A B C D E F G H1 Aging of Receivables Schedule2 December 31, 20093 Days Past Due


Due 1–30 31–60 61–90 91–120Over 120

5 Alder Fishery 15,000 15,0006 Brown Trout 5,500 5,500

30 Zug Bug Sports 2,900 2,900

31 Subtotals 850,000 422,450 247,250 103,850 33,300 25,000 18,15032 AAA Sports & Flies 2,850 2,85033 Blackmon Flies 1,200 1,20034 Charlie’s Fish Co. 1,800 1,80035 Firehole Sports 600 60036 Green River Sports 950 95037 Smith River Co. 2,200 2,20038 Wintson Company 2,250 2,25039 Wolfe Bug Sports 6,550 6,550

40 Totals 868,400 429,000 249,500 107,000 33,900 26,800 22,20041 Percent uncollectible 2% 5% 10% 25% 45% 90%

42 Estimate of uncollectible accounts 72,270 8,580 12,475 10,700 8,475 12,060 19,980

4. Bad Debt Expense.......................................................... 73,640Allowance for Doubtful Accounts............................ 73,640


Prob. 9–3B

1. Bad Debt Expense Increase Balance of

Expense Expense (Decrease) AllowanceActually Based on in Amount Account,

Year Reported Estimate of Expense End of Year

1st $ 2,600 $ 5,100 $2,500 $ 2,5002nd 3,100 6,000 2,900 5,4003rd 6,000 7,500 1,500 6,9004th 8,200 15,000 6,800 13,700

2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 3/4% of sales. The total write-off of receivables originating in the first year amounted to $5,350 ($2,600 + $2,000 + $750), as compared with bad debt expense, based on the percentage of sales, of $5,100. For the sec-ond year, the comparable amounts were $6,560 ($1,100 + $4,200 + $1,260) and $6,000.

Prob. 9–4B

1. (a) (b)Note Due Date Interest Due at Maturity

1. June 3 $400 ($30,000 × 60/360 × 8%)

2. July 26 185 ($18,500 × 30/360 × 12%)

3. Nov. 2 324 ($16,200 × 120/360 × 6%)

4. Dec. 30 540 ($36,000 × 60/360 × 9%)

5. Jan. 22 210 ($21,000 × 60/360 × 6%)

6. Jan. 26 405 ($40,500 × 30/360 × 12%)

2. Nov. 2 Accounts Receivable.................................... 16,524Notes Receivable..................................... 16,200Interest Revenue...................................... 324

3. Dec. 31 Interest Receivable....................................... 187Interest Revenue...................................... 187

Accrued interest.

$21,000 × 0.06 × 38/360 = $133$40,500 × 0.12 × 4/360 = 54

Total $187

4. Jan. 22 Cash............................................................... 21,210Notes Receivable..................................... 21,000Interest Receivable.................................. 133Interest Revenue...................................... 77*

*$21,000 × 0.06 × 22/360

26 Cash............................................................... 40,905Notes Receivable..................................... 40,500Interest Receivable.................................. 54Interest Revenue...................................... 351*

*$40,500 × 0.12 × 26/360

Prob. 9–5B

June 10 Notes Receivable................................................ 15,000Accounts Receivable.................................... 15,000

July 13 Notes Receivable................................................ 54,000Accounts Receivable.................................... 54,000

Aug. 9 Cash..................................................................... 15,225Notes Receivable.......................................... 15,000Interest Revenue........................................... 225

Sept. 4 Notes Receivable................................................ 24,000Accounts Receivable.................................... 24,000

Nov. 3 Cash..................................................................... 24,360Notes Receivable.......................................... 24,000Interest Revenue........................................... 360


10 Cash..................................................................... 55,800Notes Receivable.......................................... 54,000Interest Revenue........................................... 1,800


Dec. 5 Cash..................................................................... 24,140Notes Receivable.......................................... 24,000Interest Revenue........................................... 140


Prob. 9–6B

Jan. 10 Notes Receivable................................................ 12,000Cash............................................................... 12,000

Feb. 4 Accounts Receivable—Periman & Co. ............ 28,000Sales............................................................... 28,000


13 Accounts Receivable—Centennial Co. ............ 30,000Sales............................................................... 30,000


Mar. 6 Notes Receivable................................................ 28,000Accounts Receivable—Periman & Co. ....... 28,000

14 Notes Receivable................................................ 30,000Accounts Receivable—Centennial Co. ...... 30,000

Apr. 10 Notes Receivable................................................ 12,000Cash..................................................................... 240

Notes Receivable.......................................... 12,000Interest Revenue........................................... 240*

*($12,000 × 8% × 90/360)

May 5 Cash..................................................................... 28,280Notes Receivable.......................................... 28,000Interest Revenue........................................... 280*

*($28,000 × 6% × 60/360)

13 Accounts Receivable—Centennial Co. ............ 30,600Notes Receivable.......................................... 30,000Interest Revenue........................................... 600*

*($30,000 × 12% × 60/360)

June 12 Cash..................................................................... 30,906Accounts Receivable—Centennial Co. ...... 30,600Interest Revenue........................................... 306*

*($30,600 × 12% × 30/360)

July 9 Cash..................................................................... 12,300Notes Receivable.......................................... 12,000Interest Revenue........................................... 300*

*($12,000 × 10% × 90/360)


Aug. 10 Accounts Receivable—Lindenfield Co. ................ 13,600Sales.................................................................... 13,600

10 Cost of Merchandise Sold....................................... 8,000Merchandise Inventory...................................... 8,000

20 Cash.......................................................................... 13,464Sales Discounts....................................................... 136

Accounts Receivable—Lindenfield Co. ........... 13,600

SPECIAL ACTIVITIES

Activity 9–1

By computing interest using a 365-day year for depository accounts (payables), Mirna is minimizing interest expense to the bank. By computing interest using a 360-day year for loans (receivables), Mirna is maximizing interest revenue to the bank. However, federal legislation (Truth in Lending Act) requires banks to com-pute interest on a 365-day year. Hence, Mirna is behaving in an unprofessional manner.

Activity 9–2

1.

a. b.Addition to Allowance Accounts Written

Year for Doubtful Accounts Off During Year

2007 $15,300 $ 8,910 ($15,300 – $6,390)2008 15,750 10,260 ($6,390 + $15,750 – $11,880)2009 15,975 10,855 ($11,880 + $15,975 – $17,000)2010 16,350 8,750 ($17,000 + $16,350 – $24,600)

2. a. The estimate of 1/4 of 1% of credit sales may be too large, since the al-lowance for doubtful accounts has steadily increased each year. The in-creasing balance of the allowance for doubtful accounts may also be due to the failure to write off a large number of uncollectible accounts. These possibilities could be evaluated by examining the accounts in the sub-sidiary ledger for collectibility and comparing the result with the balance in the allowance for doubtful accounts.

Note to Instructors: Since the amount of credit sales has been fairly uniform over the years, the increase cannot be explained by an expanding volume of sales.

Activity 9–2 Concluded

b. The balance of Allowance for Doubtful Accounts that should exist at December 31, 2010, can only be determined after all attempts have been made to collect the receivables on hand at December 31, 2010. However, the account balances at December 31, 2010, could be analyzed, perhaps using an aging schedule, to determine a reasonable amount of allowance and to determine accounts that should be written off. Also, past write-offs of uncollectible accounts could be analyzed in depth in order to develop a reasonable percentage for future adjusting entries, based on past history. Caution, however, must be exercised in using historical percentages. Specifically, inquiries should be made to determine whether any signifi-cant changes between prior years and the current year may have oc-curred, which might reduce the accuracy of the historical data. For exam-ple, a recent change in credit-granting policies or changes in the general economy (entering a recessionary period, for example) could reduce the usefulness of analyzing historical data.

Based on the preceding analyses, a recommendation to decrease the annual rate charged as an expense may be in order (perhaps Halsey Co. is experiencing a lower rate of uncollectibles than is the industry average), or perhaps a change to the “estimate based on analysis of receivables” method may be appropriate.

Activity 9–3

1. and 2. 2007 2006

Net sales $35,934 $30,848Accounts receivable $548 $506Average accounts receivable $527 [($548 + $506)/2] $440.5 [($506 + $375)/2]Accounts receivable turnover 68.2 ($35,934/$527) 70.0 ($30,848/$440.5)Average daily sales $98.4 ($35,934/365) $84.5 ($30,848/365)Days’ sales in receivables 5.4 ($527/$98.4) 5.2 ($440.5/$84.5)

3. The accounts receivable turnover indicates a slight decrease in the efficiency of collecting accounts receivable by decreasing from 70.0 to 68.2, an unfavor-able trend. The days’ sales in receivables increased from 5.2 days to 5.4, an unfavorable trend. Thus, based on (1) and (2), Best Buy has slightly de-creased its efficiency in the collection of receivables.

Activity 9–3 Concluded

4. Based on accounts receivable turnover ratios, Best Buy is more efficient in collection of receivables than is Circuit City during 2007 and 2006. Comparing 2007 and 2006 ratios also reveals unfavorable trends for Circuit City.

5. We assumed that the percentage of credit sales to total sales remains con-stant from one period to the next and is similar for both companies. For ex-ample, if the percentage of credit sales to total sales is not similar or if the percentage changes between periods, then the ratios would be distorted and, thus, not comparable.

Activity 9–4

1. 2006: 18.0 {$19,315/[($1,252 + $895)/2]}

2005: 16.7 {$13,931/[($895 + $774)/2]}

2. 2006: 20.3 days [($1,252 + $895)/2] = $1,073.5; [$1,073.5/($19,315/365)] = 20.3 days

2005: 21.9 days [($895 + $774)/2] = $834.5; [$834.5/($13,931/365)] = 21.9 days

3. The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by increasing from 16.7 to 18.0, a favorable trend. The days’ sales in receivables decreased from 21.9 days to 20.3, a fa-vorable trend. Before reaching a more definitive conclusion, the ratios should be compared with industry averages and similar firms.

Activity 9–5

1. and 2. 2006 2005

Net sales $1,301,267 $1,290,072Accounts receivable $51,054 $36,033Average accounts

receivable $43,544 [($51,054 + $36,033)/2] $33,383 [($36,033 + $30,733)/2]Accounts receivable

turnover 29.9 ($1,301,267/$43,544) 38.6 ($1,290,072/$33,383)Average daily sales $3,565.1 ($1,301,267/365) $3,534.4 ($1,290,072/365)Days’ sales in

receivables 12.2 ($43,544/$3,565.1) 9.4 ($33,383/$3,534.4)

3. The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by decreasing from 38.6 to 29.9, an unfavor-able trend. The days’ sales in receivables increased from 9.4 days to 12.2 days, an unfavorable trend. Before reaching a more definitive conclusion, the ratios should be compared with industry averages and similar firms.

4. EarthLink’s accounts receivable turnover would normally be higher than that of a typical manufacturing company such as Boeing or Kellogg Company. This is because most of EarthLink’s customers usually charge their monthly bill to MasterCards or VISAs. In contrast, the customers of Boeing and Kellogg are other businesses who pay their accounts receivable on a less timely basis. For a recent year, the accounts receivable turnover ratio for H.J. Heinz was 9.0 (see Exercise 9–29).

Activity 9–6

1. Note to Instructors: The turnover ratios will vary over time. Recently, the vari-ous turnover ratios (rounded to one decimal place) were as follows:

Alcoa Inc. 9.0AutoZone, Inc. 59.9Barnes & Noble, Inc. 52.7Caterpillar 2.8The Coca-Cola Company 9.7Delta Air Lines 15.4The Home Depot 32.3IBM 3.3Kroger 90.3Procter & Gamble 9.7Wal-Mart 126.7Whirlpool Corporation 6.9

Based on the above, the companies can be categorized as follows:

Accounts Receivable Turnover Ratio

Below 15 Above 15

Alcoa Inc. AutoZone, Inc.Caterpillar Barnes & Noble, Inc.The Coca-Cola Company Delta Air LinesIBM The Home DepotProcter & Gamble KrogerWhirlpool Corporation Wal-Mart

2. The companies with accounts receivable turnover ratios above 15 are all companies selling directly to individual consumers. In contrast, companies with turnover ratios below 15 all sell to other businesses. Generally, we would expect companies selling directly to consumers to have higher turnover ra-tios since many customers will charge their purchases on credit cards. In contrast, companies selling to other businesses normally allow a credit pe-riod of at least 30 days or longer.

Documents

Warren SM Ch.09 Final