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Ratio Analysis and Bank Reconciliations

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The following are summary financial data for Parker Enterprises, Inc., and Boulder, Inc., for three recent years:
Year Year 2 Year 1
Net sales (in millions):
Parker Enterprises, Inc. . . . . . . . . . . . . . . . . . . $ 3,700 $ 3,875 $ 3,882
Boulder, Inc . . . . . . . . . . . . . . . . . . . . . . . . . 17,825 16,549 15,242
Net accounts receivable (in millions):
Parker Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . .1,400 1,800 1,725
Boulder, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525 5,800 6,205
1. Using the above data, compute the accounts receivable turnover and average collection period for each company for years 2 and 3.
2. Which company appears to have the better credit management policy?

Exercise 7-21

Preparing a Bank Reconciliation
Prepare a bank reconciliation for Eugene Company at January 31, 2006, using the information shown.
1. Cash per the accounting records at January 31 amounted to $145,604; the bank statement on this same date showed a balance of $129,004.
2. The canceled checks returned by the bank included a check written by the LeRoy Company for $3,528 that had been deducted from Eugene's account in error.
3. Deposits in transit as of January 31, 2006, amounted to $21,856.
4. The following amounts were adjustments to Eugene Company's account on the bank statement:
a. Service charges of $52.
b. An NSF check of $2,800.
c. Interest earned on the account, $80.
5. Checks written by Eugene Company that have not yet cleared the bank include four checks totaling $11,556.

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Solution Summary

Posting contains a fully formatted MS Excel spreadsheet containing examples and instructions on computing accounts receivable turnover ratios, determination of collection periods, as well as creating bank reconciliations.

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