Lovett Company reported the following selected items at March 31, 2018 (last year’s—2017—amounts also given as needed):
Accounts Payable $ 128,000 Accounts Receivable, net:
Cash 104,000 March 31, 2018 $ 108,000
Merchandise Inventory: March 31, 2017 68,000
March 31, 2018 116,000 Cost of Goods Sold 460,000
March 31, 2017 80,000 Short-term Investments 56,000
Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000
Long-term Assets 168,000 Other Current Liabilities 72,000
Long-term Liabilities 52,000
14. Compute Lovett’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables as of
March 31, 2018.
a). The acid-test ratio of the company is 1.34:1
b). The accounts receivable turnover ratio is 13.3 times.
c). The days’ sales receivable is 27.44 days.
Ratios are a financial tool used to calculate the relationship among different line items of the financial statements.
Calculation of average accounts receivable
Accounting for notes receivable and accruing interestLogan Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term
(1) Oct. 1 $ 16,000 7% 1 year
(2) Jun. 30 18,000 18% 9 months
(3) Sep. 19 12,000 8% 90 days
1. Determine the maturity date and maturity value of each note.
2. Journalize the entries to establish each Note Receivable and to record collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31,2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.
Defining common receivables terms
Match the terms with their correct definition.
1. Accounts receivable
a. The party to a credit transaction who takes on an obligation/payable.
2. Other receivables
b. The party who receives a receivable and will collect cash in the future.
c. A written promise to pay a specified amount of money at a particular future date.
4. Notes receivable
d. The date when the note receivable is due.
5. Maturity date
e. A miscellaneous category that includes any other type of receivable where there is a right to receive cash in the future
f. The right to receive cash in the future from customers for goods sold or for services performed.
At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of $28,000, and Allowance for Bad Debts had a credit balance of $3,000. During the year, Hilltop Flagpoles recorded the following:
a. Sales of $185,000 ($164,000 on account; $21,000 for cash). Ignore Cost of Goods Sold.
b. Collections on account, $135,000.
c. Write-offs of uncollectible receivables, $2,300.
1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet
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