Problem
The following information pertains to Napa Merchandising Company.
Merchandise inventory at end of year $50,000
Accounts receivable at beginning of year 54,000
Cash sales made during the year 27,000
Gross profit on sales 30,000
Accounts receivable written off during the year 1,500
Purchases made during the year 90,000
Accounts receivable collected during the year 117,000
Merchandise inventory at beginning of year 54,000
Task
A. Calculate the amount of credit sales made during the year. (Hint:You will need to use income statementrelationships-introduced in Chapter 5-in order to determine this.)
B. Calculate the balance of accounts receivable at the end of the year.
C. Compute the following ratios: accounts receivable turnover, and average collection period in days. Assume theallowance for doubtful accounts was $1,000 both at the beginning and end of the year.