Question

6a On October 1, 2018, Milagro Company sells (factors) $700,000 of receivables to Beanfield Factors, Inc. Beanfield assesses a service charge of 3% of the amount of receivables sold. The journal entry to record the sale by Milagro will include

a debit of $700,000 to Accounts Receivable.

b a debit of $21,000 to Service Charge Expense.

c a debit of $721,000 to Cash.

d a credit of $721,000 to Cash.

6b The maturity value of a $50,000, 9%, 90-day note receivable dated July 3 is

a $50,000.

b $50,750.

c $51,125.

d $54,500.

6c A 90-day note dated April 24 has a maturity date of

a July 24.

b July 23.

c July 22.

d July 21.

6d Xenox Company had net credit sales during the year of $1,300,000 and cost of goods sold of $800,000. The balance in accounts receivable at the beginning of the year was $185,000, and the end of the year it was $140,000. What was the accounts receivable turnover?

a. 4.9

b 7.0

c 8.0

d 9.3

6e The financial statements of Gervais Manufacturing Company report net sales of $500,000 and accounts receivable of $60,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

a. 29.2 days

b 36.5 days

c 43.8 days

d 57.9 days

Answer 1

a

Service Charge Expense = 700000*3% = $21000

Cash received = 700000-21000 = $679000

The journal entry to record the sale by Milagro will include a debit of $21,000 to Service Charge Expense.

Option B is correct

b

Maturity value = 50000+(50000*9%*90/360)= $51,125

Option C is correct

c

Maturity date is July 23

Option B is correct

d

Accounts receivable turnover = Net credit sales/Average Accounts receivable

Accounts receivable turnover = 1300000/((185000+140000)/2)= 8.0

Option C is correct

e

Accounts receivable turnover = 500000/((60000+40000)/2)= 10.0

Average collection period = 365/10 = 36.5 days

Option B is correct