Cordova, Inc., reported the following receivables in its December 31, 2017, year
ID: 2429633 • Letter: C
Question
Cordova, Inc., reported the following receivables in its December 31, 2017, year-end balance sheet:
Additional information:
The notes receivable account consists of two notes, a $120,000 note and a $290,000 note. The $120,000 note is dated October 31, 2017, with principal and interest payable on October 31, 2018. The $290,000 note is dated March 31, 2017, with principal and 10% interest payable on March 31, 2018. Interest rate on $120,000 note is 6%
During 2018, sales revenue totaled $2,110,000, $1,970,000 cash was collected from customers, and $40,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end gross accounts receivable.
Required:
1. In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Cordova’s 2018 income statement?
2. Calculate the receivables turnover ratio for 2018. (Round your answer to 2 decimal places.)
Interest Revenue
Bad Debt Expense
AR Turnover Rate?
Current assets: Accounts receivable, net of $51,000 in allowance foruncollectible accounts $ 383,000 Interest receivable 22,950 Notes receivable 410,000
Explanation / Answer
Answers
Working #1
Notes receivable #1
Notes receivable #2
TOTAL
Amount
$ 120,000.00
$ 290,000.00
$ 410,000.00
Dated
31-Oct-17
31-Mar-17
Interest rate
6%
10%
Interest receivable till
31-Dec-17
31-Dec-17
Maturity Date
31-Oct-18
31-Mar-18
No. of months for which interest revenue is earned in 2018
10
3
Interest Revenue
$ 6,000.00 [120000 x 6% x 10/12]
$ 7,250.00 [ 290000 x 10% x 3/12]
$ 13,250.00
Working #2
Accounts receivables
Allowance for Uncollectible Accounts
Bad Debt Expenses
Beginning balance for 2018
$ 434,000.00
$ 51,000.00
$ -
2018 Sales revenue
$ 2,110,000.00
Cash collected in 2018
$ (1,970,000.00)
Accounts written off
$ (40,000.00)
$ (40,000.00)
Unadjusted Ending balances
$ 534,000.00
$ 11,000.00
$ -
Adjusted balance of Allowance account
$ 53,400.00 [534000 x 10%]
$ -
Bad Debt Expense to be recorded
$ 42,400.00 [53400 – 11000]
$ 42,400.00
Working #3
Working
Accounts receivables, net
Notes receivables
TOTAL
A
Beginning balance
$ 383,000.00
$ 410,000.00
$ 793,000.00
B
Ending Balance
$ 480,600.00
$ -
$ 480,600.00
C=A+B
Total
$ 863,600.00
$ 410,000.00
$ 1,273,600.00
D=C/2
Average
$ 431,800.00
$ 205,000.00
$ 636,800.00
Working
Amount
A
Sales Revenue (credit sales)
$ 2,110,000.00
B
Average of Accounts receivables + Notes receivables
$ 636,800.00
C=A/B
Receivable Turnover Ratio
3.31
For 2018
Interest Revenue [Working #1]
$ 13,250.00
Bad Debt Expense [Working #2]
$ 42,400.00
AR Turnover Rate [Working #3]
3.31
Working #1
Notes receivable #1
Notes receivable #2
TOTAL
Amount
$ 120,000.00
$ 290,000.00
$ 410,000.00
Dated
31-Oct-17
31-Mar-17
Interest rate
6%
10%
Interest receivable till
31-Dec-17
31-Dec-17
Maturity Date
31-Oct-18
31-Mar-18
No. of months for which interest revenue is earned in 2018
10
3
Interest Revenue
$ 6,000.00 [120000 x 6% x 10/12]
$ 7,250.00 [ 290000 x 10% x 3/12]
$ 13,250.00