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Uncollectible Accounts and Ratio Calculation

Chapter 8: Questions 3 and 4
3. What are the essential features of the allowance method of accounting for bad debts?
4 Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren.
Chapter 8: Exercise E8-5
E8-5 Hachey Company has accounts receivable of $95,100 at March 31, 2007. An analysis of the accounts shows these amounts. Prepare entries for recognizing accounts receivable.

Balance, March 31
Month of Sale 2007 2006
March $65,000 $75,000
February 12,600 8,000
December and January 10,100 2,400
November and October 7,400 1,100
$95,100 $86,500

Chapter 9: Exercise E9.9
E9-9 Optix International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Frank Renolds, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Carol Fischer, the company's CFO, has provided the following projections based on results with and without the new products.
Without New Products With New Products
Sales $10,000,000 $18,000,000
Net income $800,000 $1,800,000
Average total assets $5,000,000 $15,000,000
(a) Compute the company's return on assets ratio, profit margin ratio, and asset turnover ratio, both with and without the new product line.
(b) Discuss the implications that your findings in part (a) have for the company's decision.

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Solution Summary

The solution explains various calculations relating to uncollectible accounts and calculation of some ratios