The president of Felder Enterprises Ltd., Emma Felder, is considering the impact that certain transactions have on the company"s receivables turnover and average collection period ratios. Prior to the transactions on the next page, Felder"s receivables turnover was 6 times, and its average collection period was 61 days.
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Transaction
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Current
Ratio
(2: 1)
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Receivables
Turnover
(6X )
|
Average
Collection
Period
(61 days)
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1. Recorded sales on account $100,000.
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2. Collected $25,000 owed by customers.
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3. Wrote off a $2,500 account from a customer as
uncollectible. (Uses allowance method.)
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4. Recorded sales returns of $1,800 and credited the
customers" accounts.
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5. Recorded bad debts expense for the year $7,900,
using the allowance method.
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Instructions
(a) Complete the table, indicating whether each transaction will increase (I), decrease (D), or have no effect (NE) on the ratios.
(b) Emma was reading through the financial statements for some publicly traded companies and noticed that they had recorded an expense related to the sale of receivables.