Question

Presented below is information for Kingbird Company.

1. Beginning-of-the-year Accounts Receivable balance was $16,600.
2. Net sales (all on account) for the year were $102,400. Kingbird does not offer cash discounts.
3. Collections on accounts receivable during the year were $90,000.
a. Prepare (summary) journal entries to record the items noted above. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 1. 2. 3. SHOW LIST OF ACCOUNTS
b. Compute Kingbird's accounts receivable turnover and days to collect receivables for the year. The company does not believe it will have any bad debts. (Round answers to 2 decimal places, e.g. 4.57.) Accounts receivable turnover times Days to collect accounts receivable days Use the results to analyze Kingbird's liquidity. The turnover ratio last year was 8.1. This is a trend in liquidity.

Answer 1

Kingbird Company

a) Journal Entries:

1. No journal required

2. Debit Accounts Receivable $102,400

Credit Sales Revenue $102,400

To record sales on account.

3. Debit Cash $90,000

Credit Accounts Receivable $90,000

To record the collections on account.

b) Accounts receivable turnover and days:

Accounts receivable turnover = Sales/Average Receivable

= $102,400/22,800

= 4.49

Accounts receivable days = 365/4.49 = 81.29 days

c) The accounts receivable turnover ratio for the current year is 4.49. This is better than last year's 8.1. The current year's ratio shows that liquidity had been improved.

Step-by-step explanation:

a) Data and Calculations:

Accounts Receivable:

Beginning balance $16,600

Net sales 102,400

Cash collections (90,000)

Ending balance $29,000

Average receivable = ($16,600 + $29,000)/2 = $22,800