Question

Lincrat Corp. reports a current ratio of 3- to- 1 in its 20X2 financial statements. The statement of financial position shows current assets of $ 3,116,500 and current liabilities of $ 1,040,100. Lincrat has accounts receivable of $ 1,267,300. The company transfers $ 970,000 of these accounts receivable to a financial institution. There are $ 33,600 of bad debts associated with these accounts receivable, an amount that is already in the allowance for doubtful accounts. Proceeds of $ 889,450 are received from the transfer. The transfer is on a non- notification basis, which means that the customers pay Lincrat and Lincrat then remits the cash to the financial institution. The customers pay $ 936,400 to Lincrat on schedule, $ 33,600 is written of to the allowance at the appropriate time, and the cash remittance is forwarded to the financial institution.

Required:
1. Record all journal entries for the sequence of events assuming: a. he transfer is recorded as a sale/derecognition, and b. he transfer is recorded as a borrowing.
2. Calculate the current ratio, after the initial entry in requirements 1a and 1b, and comment on the result.



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  • CreatedFebruary 17, 2015
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