The December 31, 2009 balance sheet of the Blackmon Corporation disclosed the following information relating to its receivables:
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The company is contingently liable for a discounted note receivable of $10,000.During 2010, credit sales (terms, n/EOM) totaled $2,200,000 and collections on accounts receivable (unassigned) amounted to $1,900,000. Uncollectible accounts totaling $18,000 from several customers were written off, and a $1,350 accounts receivable previously written off was collected. Additionally, the following transactions relating to Blackmon's receivables occurred during the year:
Mar. 6 Received payment of $12,460 on a note from the Renko Company. The payment included interest revenue of $460.
Mar. 31 The March bank statement indicated that the discounted note had been paid at maturity.
May 1 Accepted a 120 day, 13% note from the Licata Company in exchange for its account receivable of $4,800.
May 18 Received a $6,900, 90 day, 12% note from the Eagle Manufacturing Corporation for a credit sale.
June 2 Discounted both the Licata and Eagle notes with recourse at the bank at 14% (assume that Blackmon normally does not discount its notes).
July 1 Assigned $140,000 of accounts receivable to a finance company. Under the terms of the agreement, Blackmon receives 85% of the value of the accounts assigned, less a service charge of $5,000, and is charged 1.5% per month on the outstanding loan balance.
July 6 A sales allowance of $2,500 on an assigned account is allowed by Blackmon.
July 13 A sales return of $800 on an assigned account is granted by Blackmon.
July 31 Collections of $50,000 are made on assigned accounts. This amount and one month's interest are remitted to the finance company.
Aug. 31 Assigned accounts of $60,000 are collected, and the remainder of the loan is repaid, including interest.
Aug. 31 The August bank statement indicated the Eagle note had been paid.
Sept. 1 The bank notified Blackmon that Licata defaulted on its note and charges a fee of $25.
Sept. 4 Collected the amount due from the Licata Company.
Dec. 31 Collected interest of $5,000 on the outstanding notes receivable.
On December 31, 2010, an aging of the accounts receivable balance indicated the following:
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Required:
1. Prepare the journal entries to record the preceding receivable transactions during 2010 and the necessary adjusting entry on December 31, 2010.
2. Prepare the receivables portion of Blackmon's December 31, 2010 balance sheet.
3. Compute Blackmon's accounts receivable turnover in days, assuming a 365 day business year (as discussed earlier in the chapter and in the Appendix to Chapter 6). What is your evaluation of its collection policies?
4. If Blackman Corporation uses IFRS, what might be the heading of the section for the receivables reported in Requirement2?