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Financial Accounting 449 812) SupEx (Receivables) wip.docx Instructor-Turck Use your own paper Start each problem on a new sheet of paper A. Income Statement Forecasts/analysis: Buck's Coffee Company(BCC) is a seller of Columbian coffee. BCC maintains a tight credit policy. However BCC does sell on open-account to some regular customers, and occasionally accepts new customers for sales on open-account. BCC manages all aspects of the resulting Accounts Receivable. Average experience for the past three years has been follows: Total Cash Sales Sales on account Sales $350,000 = $200,000 +$150,000 Cost of Goods Sold 210,000 Bad Debt Expense 4,000 Additional Operating Expenses 61,000 Buck Anderson, the manager and sole shareholder, is considering changing the credit policy by accepting customers' credit cards (VISA & MasterCard, for example). Buck expects BCC to sell 10% more coffee by easing credit restrictions. To simplify analysis, Buck assumes that ALL sales will be via credit card. Also Buck believes that switching to credit cards will save the business $2,000 on Additional Operating Expenses. However credit card companies charge merchants like BCC a 2% transaction fee on every credit card transaction. Instructions (assume no income taxes)(no journal entries needed on this assignment!): 1. Would you advise BCC contract with credit card companies and start accepting plastic? (to answer the question, prepare income statements under the present scenario, then do so under the credit card plan, and then compare Net Income projections)(show Bad Debt Expense and Credit Card Expense as a separate line- items on your income statement forecasts) 2. Buck has learned that credit card companies are planning to triple their fees, does your advice change? B. ICHIRO COMPANY: Note: Ichiro management team estimates the percentage of uncollectible credit sales to be 1.2% of total credit sales. 1. Transactions: During 2018, (a) sales on account were $3,200,000 and (b) collections on account were $2,950,000. (C) Unfortunately, $35,000 in uncollectible accounts had to be written off. Journalize these three transactions. 2. 3. 4. Set-up T-acets: At the beginning of 2018, the balances for Gross Accounts Receivable and Allowance for Doubtful Accounts were $430,000 and $31,700, respectively. Neatly, set up T-accounts for Gross A/R and AfDA now. Post and Summarize: Post the entries above to the T-accounts. Determine the year-end balance of Accounts Receivable and the unadjusted balance in Allowance for Doubtful Accounts. Adjustments: Based on the Note above, make the year-end Adjusting Journal Entry to record the Bad Debt Expense for 2018. Amount calculated = $ Balance Sheet Presentation: Prepare the year-end balance sheet presentation for A/R, gross; Allowance for Doubtful Accounts; and A/R, net at the end of 2018 and at the end of 2017.(i.e., present comparative balance sheets) 2019: On January 13, 2019, Alex Inc., a customer, filed for bankruptcy, and alerted Ichiro Co. that it would not be paying the $750 due to Ichiro Co. Prepare the necessary journal entry, 5. 6

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