Exercise 7-15A: Comprehensive single-cycle problem

Exercise 7-15A Comprehensive single-cycle problem

The following post-closing trial balance was drawn from the accounts of Little Grocery Supplier (LGS) as of December 31, Year 1:

Transactions for Year 2

1. LGS acquired an additional $20,000 cash from the issue of common stock.
2. LGS purchased $85,000 of inventory on account.
3. LGS sold inventory that cost $91,000 for $160,000. Sales were made on account.
4. The company wrote off $900 of uncollectible accounts.
5. On September 1, LGS loaned $18,000 to Eden Co. The note had an 8 percent interest rate and a one-year term.
6. LGS paid $19,000 cash for operating expenses.
7. The company collected $161,000 cash from accounts receivable.
8. A cash payment of $92,000 was paid on accounts payable.
9. The company paid a $5,000 cash dividend to the stockholders.
10. Accepted credit cards for sales amounting to $7,000. The cost of goods sold was $4,000. The credit card company charges a 4% service charge. The cash has not been received.
11. Uncollectible accounts are estimated to be 1 percent of sales on account.
12. Recorded the accrued interest at December 31, Year 2 (see item 5).

Required

a. Record the above transactions in general journal form.

b. Open T-accounts and record the beginning balances and the Year 2 transactions.

c. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.

Exercise 7-16A: Accounts receivable turnover and average days to collect accounts receivable

The following information is available for Market, Inc. and Supply, Inc. at December 31:

Required

a. What is the accounts receivable turnover for each of the companies?

b. What is the average days to collect the receivables?

c. Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for each company?