Question -
Fill in all of the missing amounts. Show computations.
Recording Bad Debts and Interpreting Disclosure of Allowance for Doubtful Accounts
Jayco Inc. started its operations in 2016. Its sales, all on account, totalled $700,000. The company collected $500,000 in cash from customers during the year and wrote off $8,000 in uncollectible accounts. The company set up an allowance for doubtful accounts at December 31, 2016, its fiscal year end, and determined the account balance to be $14,000. The unadjusted balances of selected accounts at December 31, 2017, are as follows:
Accounts receivable $300,000
Allowance for doubtful accounts (debit) 10,000
Sales revenue (including 80 percent in sales on account) 800,000
Aging of the accounts receivable on December 31, 2017, resulted in an estimate of $11,000 in potentially uncollectible accounts.
Required:
1. Prepare the journal entries to record all the transactions during 2016 and post them to appropriate T-accounts.
2. Prepare the journal entries to record all the transactions during 2017 and post them to appropriate T-accounts.
3. Compute the receivables turnover ratio and the average collection period for 2017, and comment on the results.
4. Does the write-off of accounts receivable affect the current ratio? Explain.
5. Does the recording of bad debt expense affect the receivables turnover ratio? Explain.