Presented below is information for Jones Company. 1. Beginning-of-the-year Accounts Receivable balance was $15,000. 2. Net sales (all on account) for the year were $100,000. Jones does not offer cash discounts. 3. Collections on accounts receivable during the year were $70,000. (a) Prepare (summary) journal entries to record the items noted above. (b) Compute Jones’s accounts receivable turnover for the year. The company does not believe it will have any bad debts (c) Use the turnover ratio computed in (b) to analyze Jones’s liquidity. The turnover ratio last year was 6.0.
Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling $25,000 will be trans- ferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjust- ments and assesses a finance charge of 4%. The fair value of the recourse obligation is $1,200. (a) Prepare the journal entry to record the sale of the receivables. (b) Compute Jones’s accounts receivable turnover for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.