****Chapter 5 Activity****
Allowance for Uncollectable Accounts
1. On December 31, 2019, St. Briggs Hospital reported accounts receivable at $250,000 (A/R) and a
credit balance of $15,000 (All.) in their Allowance for Uncollectable Accounts on its balance sheet.
a. Using the aging method, the hospital estimates it will be unable to collect $17,350(uncollectible
per aging sched.) in accounts receivable from their patients at year-end. What is the appropriate
journal entry for updating their Allowance for Uncollectable Accounts on December 31, 2019?
Dr. Uncollectable Account Exp. Increase. 2350
Cr. All. For uncollectible accounts increase. 2350
b. On March 21, 2020, St. Briggs Hospital determined that the one of their patient’s accounts
receivable, worth $1,500 was uncollectable. What is the appropriate journal entry that the hospital
would record on March 21, 2020?
Dr. All. For uncollectible accounts decrease 1500
Cr. A/R decrease 1500
2. On December 31, 2019, Pete’s Dog Walkers had credit sales of $80,000. The company estimates that
3.0% of credit sales will be uncollectible. The Allowance for Uncollectable Accounts has a current
credit balance of $1,000.
a. What would be the appropriate journal entry for the company to update their Allowance for
Uncollectable Accounts at year-end? $80,000 x .03= $2400
Dr. Uncollectible acct. exp increase 2400
Cr. All. For uncollectible account increase 2400
b. On February 16, 2020, Pete’s Dog Walkers determined that John Doe’s $175 account will not be
collectible. What is the appropriate journal entry that Pete’s Dog Walkers should record on
February 16, 2020?
Dr. All. For uncollectible accounts 175
Cr. A/R 175
Notes Receivable
Matchbox Corporation lends money to Earnhardt Corporation on July 1, 2019, and accepts a
9-month, 10% note receivable from Earnhardt for $48,000. Matchbox’s year-end is
December 31, 2019. All interest is due/payable at the time the note matures, April 1, 2020.
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1. Draw a timeline to help you visualize the accrual of interest.
July 1, 2019 Dec 21, 2019(year end) April 1, 2020(maturity)
2. What is the appropriate journal entry Matchbox Corporation will record on July 1, 2019?
Dr. Note Receivable increase 48000
Cr. Cash decrease 48000
3. What is the appropriate journal entry Matchbox Corporation needs to record on December 31, 2019?
Assume no adjusting entries have been made since the original entry to record the note on July 1,
2019. Principle x rate x time
48000 x 0.10 x 1/12= $400 per month
$400 per month x 6 mos= $2400 interest for 2019
4. What is the appropriate journal entry that Matchbox Corporation will make when the note matures
on April 1, 2020?
$400 per month x 3 mos= $1200 interest for 2020
Dr. Cash increases 51600-maturity value
Cr. Note receivable decreases 48000
Cr. Interest receivable decreases 2400
Cr. Interest revenue increases 1200
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Sales Returns and Allowances
L&W Inc. is a merchandising company that had sales of $875,000 for the period ending December 31,
2019.
1. At the end of the year, L&W Inc. estimates that customers will request refunds for 3% of sales
and estimates that merchandise costing $15,000 will be returned. What are the appropriate
adjusting journal entries L&W will record at year-end?
$875,000 x .03 = $26,250
Sales/refund portion:
Dr. Sales Returns & All. Increases 26,250
Cr. Sales refunds payable increases 26,250
Inventory portion:
Dr. Inventory returns est. increase A 15,000
Cr. COGS decreases 15,000
2. On January 29, 2020, one of L&W Inc.’s customers returned merchandise with a selling price of
$5,500. It was originally purchased on account. The merchandise originally cost L&W Inc. $3,450.
Dr. Sales refunds payable decrease L 5,500
Cr. A/R 5,500
Dr. Inventory increases 3,450
Cr. Inventory returns Est. decreases 3,450
Ratio Analysis- save for Wednesday
Below is the 2019 A/R Turnover and DSO for lululemon athletica inc. Using the financial statements
attached at the end of this activity, calculate the A/R Turnover and DSO for 2020, then answer the
following question.
2020 2019
A/R Turnover 104.71 times 119.66 times
DSO 3.49 days 3.05 days
Add accounts receivable for 2020 and 2019 divide by 2. 2019 is the Beg. Balance for new period.
2020 is the Ending balance for period.
1. Discuss what these ratios mean for the company.
A/R turnover= net sales I/S / average A/R, net which is B/S
$3,979,296/ ($40,219 + $35,786)/2
3
$3,979,296-> $38,002.5 av. A/R=104.711 times
DSO=365 days/104.711= 3.485 days
A/R Turnover is how many times per year a company collects av. A/R balance. DSO is how many days it
takes to collect av. A/R bal. A/R going up is favorable. DSO going down is favorable.
Conclusion: lulu became less efficient at collecting A/R / less liquid.
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lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share amounts)
Fiscal Year Ended
February 2,
2020 February 3,
2019 January 28,
2018
Net revenue $ 3,979,296 $ 3,288,319 $ 2,649,181
Cost of goods sold 1,755,910 1,472,032 1,250,391
Gross profit 2,223,386 1,816,287 1,398,790
Selling, general and administrative expenses 1,334,276 1,110,451 904,264
Asset impairment and restructuring costs — — 38,525
Income from operations 889,110 705,836 456,001
Other income (expense), net 8,283 9,414 3,997
Income before income tax expense 897,393 715,250 459,998
Income tax expense 251,797 231,449 201,336
Net income $ 645,596 $ 483,801 $ 258,662
Other comprehensive income (loss), net of
tax:
Foreign currency translation adjustment (7,773) (73,885) 58,577
Comprehensive income $ 637,823 $ 409,916 $ 317,239
Basic earnings per share $ 4.95 $ 3.63 $ 1.90
Diluted earnings per share $ 4.93 $ 3.61 $ 1.90
Basic weighted-average number of shares
outstanding 130,393 133,413 135,988
Diluted weighted-average number of shares
outstanding 130,955 133,971 136,198
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lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
February 2,
2020
February 3,
2019
ASSETS
Current assets
Cash and cash equivalents $ 1,093,505 $ 881,320
Accounts receivable 40,219 35,786
Inventories 518,513 404,842
Prepaid and receivable income taxes 85,159 49,385
Other prepaid expenses and other current assets 70,542 57,949
1,807,938 1,429,282
Property and equipment, net 671,693 567,237
Right-of-use lease assets 689,664 —
Goodwill and intangible assets, net 24,423 24,239
Deferred income tax assets 31,435 26,549
Other non-current assets 56,201 37,404
$ 3,281,354 $ 2,084,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 79,997 $ 95,533
Accrued inventory liabilities 6,344 16,241
Accrued compensation and related expenses 133,688 109,181
Current lease liabilities 128,497 —
Current income taxes payable 26,436 67,412
Unredeemed gift card liability 120,413 99,412
Other current liabilities 125,043 112,698
620,418 500,477
Non-current lease liabilities 611,464 —
Non-current income taxes payable 48,226 42,099
Deferred income tax liabilities 43,432 14,249
Other non-current liabilities 5,596 81,911
1,329,136 638,736
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value:
5,000 shares authorized; none issued and outstanding — —
Exchangeable stock, no par value: 60,000 shares
authorized; 6,227 and 9,332 issued and outstanding — —
Special voting stock, $0.000005 par value: 60,000 shares
authorized; 6,227 and 9,332 issued and outstanding — —
Common stock, $0.005 par value: 400,000 shares
authorized; 124,122 and 121,600 issued and outstanding 621 608
Additional paid-in capital 355,541 315,285
Retained earnings 1,820,637 1,346,890
Accumulated other comprehensive loss (224,581) (216,808)
1,952,218 1,445,975
$ 3,281,354 $ 2,084,711
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