Concept explainers
Exercise 4-54 Operating Cycle and Current Receivables
a. Dither and Sly are attorneys-at-law who specialize in federal income tax law. The): complete their typical case in 6 months or less and collect from the typical client within 1 additional month.
b. Johnston’s Market specializes in fresh meat and fish. All merchandise must be sold within one week of purchase. Almost all sales are for cash and any receivables are generally paid by the end of the following month.
c. Mortondo’s is a women’s clothing store specializing in high-style merchandise. Merchandise spends an average of 7 months on the rack following purchase. Most sales are on credit and the typical customer pays within 1 month of sale.
d. Trees Inc. grows Christmas trees and sells them to various Christmas tree lots. Most sales are for cash. It takes 6 years to grow a tree.
Required:
For each of the businesses described above, indicate the length of the operating cycle.
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Cornerstones of Financial Accounting
- Problem 29 Cabanes Factors provides financing to other companies by purchasing their accounts receivable on a non-recourse basis. Cabanes charges a commission to its clients of 15% of all receivables factored. In addition, Cabanes withholds 10% of receivables factored for protection against sales returns or adjustments. Cabanes credits the 10% withheld to Client Retainer and makes payments to clients at the end of each month so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Cabanes recognizes its 15% commissions as revenue at the time the receivables are factored. Also, experience has led Cabanes to establish allowance for bad debts of 4% of all receivables purchased. On January 2, 2021, Cabanes purchased receivables from Cabana Company totaling P3,000,000. Cabana has previously established an allowance for bad debts for these receivables of P100,000. By January 31, Cabanes had collected P2,500,000 on these receivables.…arrow_forwardQUESTION 2 Use the average daily method to find the finance charge on the credit card account for September (that will appear on the October bill). The starting balance from the previous month is 280$. The transactions on the account for the month are given below. Assume an annual interest rate of 29% on the account and that the billing date is October 1st. September has 30 days. The starting balance is 280$ Charged $123 Made a payment of $ 350 Returned a T-shirt $251 Charged $89 September 1 September 3 September 10 September 13 September 22 The finance charge is $ (Round the answer to nearest cent as needed. Type dollars and cents in the two given blanks.)arrow_forwardChapter 10 Discussion Sales tax: Remember that the customer is charged the sales tax and the company is responsible for sending the sales tax dollars to the appropriate government entity. The company has sales of $3,500 in cash and $4,400 on account. The sales tax rate is 6%. Make the journal entry to record the sales and sales tax Installment notes: Remember that the monthly payment stays the same, but the amount of that payment that is interest continues to go down and the payment of the principal continues to go up. Assume that on January 1, the company borrows $50,000 from Chase Bank for 4 years at 5% interest. The installment payment is $1,200 every month. Calculate the interest amount and principal amount for the first and second monthsarrow_forward
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- Refer to Exercise 8.24. Del Spencers purchases clothing evenly throughout the month. All purchases are on account. On the first of every month, Jana Spencer, Dels wife, pays for all of the previous months purchases. Terms are 2/10, n/30 (i.e., a 2 percent discount can be taken if the bill is paid within 10 days; otherwise, the entire amount is due within 30 days). The forecast purchases for the months of May through September are as follows: Required: 1. Prepare a cash disbursements schedule for the months of August and September. (Round all cash amounts to the nearest dollar.) 2. Now, suppose that Del wants to see what difference it would make to have someone pay for any purchases that have been made three times per month, on the 1st, the 11th, and the 21st. Prepare a cash disbursements schedule for the months of July and August assuming this new payment schedule. (Round all cash amounts to the nearest dollar.) 3. Suppose that Jana (who works full-time as a school teacher and is the mother of two small children) does not have time to make payments on two extra days per month and that a temporary employee is hired on the 11th and 21st at 20 per hour, for four hours each of those two days. Is this a good decision? Explain. Del Spencer is the owner and founder of Del Spencers Mens Clothing Store. Del Spencers has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern: 15 percent of credit sales are paid in the month of sale. 65 percent of credit sales are paid in the first month following the sale. 14 percent of credit sales are paid in the second month following the sale. 6 percent of credit sales are never collected. Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge. Del Spencers has developed the following sales forecast: Required: Prepare a schedule of cash receipts for August and September.arrow_forwardQuestion 11 options: Answer the following, in the blank provided using the specified format. (For example: 40 days) A company's current revenue is $10,000,000 and accounts receivable are now $1,000,000. The sales manager estimates that sales should increase by 10% during the following year. The accounts receivable manager estimates that the new level of accounts receivable will remain unchanged. The companies current average collection period is ____.arrow_forwardQuestion 11 Use the average daily balance method to compute the finance charge on the credit card account for the previous month. The starting balance and transactions on the account for the month of April are given to the right. Assume an annual interest rate of 18% Month: April (30 days); previous month's balance: $210 April 11 Charged $67 for a coat April 15 Made payment of $120 April 22 Charged $107 for DVDs April 26 Charged $19 for groceries The finance charge is $ (Round to the nearest cent as needed.)arrow_forward
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