Question

Yamaska Ltd., a new clothing manufacturer, has just completed its first year of operations and is in the process of preparing its first set of annual financial statements. You work for Yamaska's accountant and you've been asked to work on accounts receivable. You have been provided with the following information:
• The accounts receivable listing shows that customers owed Yamaska $235,000 on December 31.
• Sales for the year were$1,900,000, all on credit.
• The ages of the accounts receivable are:
• Current............ $180,000
• Up to 60 days overdue........ 40,000
• Over 60 days overdue ......... 15,000
Management expects to collect 98 percent of the current receivables, 80 percent of the receivables that are up to 60 days overdue, and 50 percent of the rest.
• The company offers a 2 percent discount for prompt payment. Of the current receivables, $120,000 is still eligible for the discount. Management expects 40 percent of customers to pay in time to receive the discount.
• The company allows returns under certain circumstances. Management expects that
$12,000 of goods will be returned by the end of January.

Required:
a. Prepare all adjusting journal entries required for bad debts, discounts, and returns.
b. Determine the net amount of accounts receivable that will be reported on the December 31, 2018 balance sheet.
c. Determine the amount of net sales that will be reported on the 2018 income statement.
d. How confident should a stakeholder be with the amounts reported in these financial statements? Explain your answer.



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  • CreatedFebruary 26, 2015
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