Chamberlain Enterprises Inc reported the following receivabl

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2016, year-end balance sheet:

Additional Information:

1.  The notes receivable account consists of two notes, a $60,000 note and a $200,000 note. The $60,000 note is dated October 31, 2016, with principal and interest payable on October 31, 2017. The $200,000 note is dated June 30, 2016, with principal and 6% interest payable on June 30, 2017.

2.  During 2017, sales revenue totaled $1,340,000, $1,280,000 cash was collected from customers, and $22,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable.

3.  On March 31, 2017, the $200,000 note receivable was discounted at the Bank of Commerce. The bank’s discount rate is 8%. Chamberlain accounts for the discounting as a sale.

Required:

1.  In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2017 income statement?

2.  What amounts will appear in the 2017 year-end balance sheet for accounts receivable?

3.  Calculate the receivables turnover ratio for 2017.

Solution

1. The following revenue and expense amount related to receivables will appear in Chamberlain\'s 2017 Income Statement -

Revenue -

Interest Revenue - $10,000

Note 1 - $60,000 x 12% x 10/12 = $6,000

Note 2 - $200,000 x 6% x 3/12 = $4,000

Expense -

Loss on Sale of Note Receivable : $1,240

Carrying value of discounted note receivable = $200,000 + (200,000 x 6% x 9/12) = $209,000

Maturity Value - $200,000 x 106% = 212,000

Discount - $212,000 x 8% x 3/12 = $4,240

Proceeds of Net Receivable = Maturity Value - Discount = $212,000 - $4,240 = $207,760

Loss on Sale of Net Receivable = $209,000 - $207,760 = $1,240

Analysis of Accounts Receivables :

Beginning Accounts Receivable (218,000+24,000) = $242,000

Add : Credit Sales - $1,340,000

Less: Write Off - $22,000

Less: Cash Collections - $1,280,000

Ending Accounts Receivable = $280,000

Bad Debt Expenses = $280,000 x 10% - (24,000 - 22,000) = $26,000

Allowance for Uncollectible Accounts =$24,000 + $26,000 - $22,000 = $28,000

2. Amounts appearing in 2017 year - end Balance Sheet for Accounts Receivable

Account Receivable ($280,000), net of $28,000 for allowance for uncollectibe accounts - $252,000

3. Receivables Turnover Ratio for 2017

= $1,340,000 / $235,000 = 5.7

Where,

($218,000 + $250,000) / 2 = $235,000