Geisel, Inc. reported net sales revenue of $600,000 in 2018 and $500,000 in 2019. The company's average net receivables were $120,000 during 2017 and $130,000 during 2018. At December 31, 2019, the company had Accounts Receivable of $148,000 and an unadjusted debit balance in its Allowance for Doubtful Accounts account of $1,000. The company reported Bad Debt Expense of $6,000 during 2018. Required:a. Determine the net receivables at December 31, 2019. b. Calculate the receivables turnover ratio for 2018 and 2019. c. Calculate the days to collect for 2018 and 2019.
What will be an ideal response?
a.
| Accounts Receivable | $ | 148,000 | |||||
| Less Allowance for Doubtful Accounts: | |||||||
| Unadjusted balance (debit) | $ | 1,000 | |||||
| Adjustment (Bad Debt Expense) | (6,000 | ) | |||||
| Adjusted balance | (5,000 | ) | |||||
| Net receivables | $ | 143,000 | |||||
b.
Receivable Turnover = Net credit sales ÷ Average net receivables
Receivable Turnover = Net credit sales ÷ (Beginning net receivables + Ending net receivables) ÷ 2
2018
= $600,000 ÷ [($120,000 + $130,000) ÷ 2] = $600,000 ÷ $125,000 = 4.8 times
2019
= $500,000 ÷ [(130,000 + $143,000) ÷ 2] = $500,000 ÷ $136,500 = 3.7 times
c.
Days to collect = 365 ÷ Receivables turnover ratio
2018
365 ÷ 4.8 (from above) = 76.0 days
2019
365 ÷ 3.7 (from above) = 98.6 days
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