Homework assignment

Chapter 8 Homework

Due Week 5 and worth 10 points

Directions: Answer the following four questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your homework assignment using the homework assignment link in the course shell.

E8-4

The ledger of Wainwright Company at the end of the current year shows Accounts Receivable $78,000; Credit Sales $810,000; and Sales Returns and Allowances $40,000.

Instructions:

(a) If Wainwright uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Wainwright determines that Hiller’s $900 balance is uncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of $1,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable.

(c) If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 8% of accounts receivable.

E8-10

The following is a list of activities that companies perform in relation to their receivables.

1. Selling receivables to a factor.

2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business.

3. Collecting information on competitors’ payment period policies.

4. Preparing monthly accounts receivable aging schedule and investigating problem accounts.

5. Calculating the accounts receivable turnover and average collection period.

Instructions:

Match each of the activities listed above with a purpose of the activity listed below.

(a) Determine to whom to extend credit.

(b) Establish a payment period.

(c) Monitor collections.

(d) Evaluate the liquidity of receivables.

(e) Accelerate cash receipts from receivable when necessary.

E8-11

Suppose the following information was taken from the 2014 financial statements of FedEx Corporation, a major global transportation / delivery company.

(in millions)	2014	2013
Accounts receivable (gross)	$ 3,587	$ 4,517
Accounts receivable (net)	3,391	4,359
Allowance for doubtful accounts	196	158
Sales revenue	35,497	37,953
Total current assets	7,116	7,244

Instructions:

Answer each of the following questions.

(a) Calculate the accounts receivable turnover and the average collection period for 2014 for FedEx.

(b) Is accounts receivable a material component of the company’s total current assets?

(c) Evaluate the balance in FedEx’s allowance for doubtful accounts.

Discussion Questions

"Accounts Receivable Management"  Please respond to the following:

Examine the five (5) steps to managing accounts receivable. Speculate on the step that is most vulnerable to fraud. Suggest at least two (2) actions that a company can take in order to protect this step from fraud.

Imagine that your company has tasked you with developing a plan for factoring accounts receivables. Create one (1) scenario that demonstrates the key benefits and / or detriments to your company from factoring accounts receivable