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Problem 7-5 (Algo) Receivables; bad debts and returns; Gemstone Products [LO7-4, 7-5] Gemstone Products located in...

Problem 7-5 (Algo) Receivables; bad debts and returns; Gemstone Products [LO7-4, 7-5] Gemstone Products located in New York City, is one of the world's largest producers of beauty and related products. The company's consolidated balance sheets for the 2016 and 2015 fiscal years included the following ($ in thousands): 2016 2015 Current assets: Receivables, less allowances of $132,185 in 2016 and $87,785 in 2015 $ 460,300 $ 440,700 A disclosure note accompanying the financial statements reported the following ($ in thousands) Year Ended 2016 2015 (In thousands) Calculation of account receivables, net: Receivables $ 592,485 $ 528,485 Less: allowance for doubtful accounts (123,005 ) (77,705 ) Less: reserve for product returns (9,180 ) (10,080 ) Trade accounts receivable, net: $ 460,300 $ 440,700 Assume that the company reported bad debt expense in 2016 of $191,700 and had products returned for credit totaling $187,105 (sales price). Net sales for 2016 were $5,613,800 ($ in thousands). Required: 1. What is the amount of accounts receivable due from customers at the end of 2016 and 2015? 2. What amount of accounts receivable did Gemstone write off during 2016? 3. What is the amount of Gemstone's gross sales for the 2016 fiscal year? 4. Assuming that all sales are made on a credit basis, what is the amount of cash Gemstone collected from customers during the 2016 fiscal year?

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Answer #1

SOLUTION:

1)CALCULATION OF ACCOUNTS RECEIVABLE DUE FROM CUSTOMERS AT THE END OF 2016 AND 2015:

PARTICULARS 2016 2015
NET ACCOUNTS RECEIVABLE 460300 440700
ALLOWANCE FOR DOUBTFUL ACCOUNTS 123005 77705
GROSS ACCOUNTS RECEIVABLE

583305

(460300+123005)

518405

(440700+77705)

2)CALCULATION OF ACCOUNT RECEIVABLE GEMSTONE WRITE OFF DURING 2016

WRITE OFF OF ACCOUNTS RECEIVABLE FOR 2016=OPENING BALANCE OF 2016+BAD DEBT EXPENSE-CLOSING BALANCE

=77705+191700-123005

=$146400

3)CALCULATION OF GROSS SALES FOR 2016 FISCAL YEAR:

GROSS SALES=NET SALES+RETURNS

=5613800+187105

=$5800905

4)CALCULATION OF CASH COLLECTED FROM CUSTOMERS DURING 2016 FISCAL YEAR:

CASH COLLECTION=OPENING BALANCE+GROSS SALES-RETURNS-WRTIE OFF-CLOSING BALANCE

=528485+5800905-187105-146400-592485

=$5403400

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