FAR MCQ Question – Working Capital

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    Topic
  • #194485
    vvSPAZvv
    Participant

    Can someone please explain to me why they are removing accounts written of (40,000) and sales returns (75,000) when it is asking me for the A/R balance BEFORE allowances for sales returns and uncollectibles?

    The following information relates to Jay Co.’s accounts receivable for Year 2:

    Accounts receivable, 1/1/Year 2 $ 650,000

    Credit sales for Year 2 2,700,000

    Sales returns for Year 2 75,000

    Accounts written off during Year 2 40,000

    Collections from customers during Year 2 2,150,000

    Estimated future sales returns at 12/31/Year 2 50,000

    Estimated uncollectible accounts at 12/31/Year 2 110,000

    What amount should Jay report for accounts receivable, before allowances for sales returns and uncollectible accounts, at December 31, Year 2?

    a. $925,000

    b. $1,085,000

    c. $1,125,000

    d. $1,200,000

    Explanation

    Choice “b” is correct, $1,085,000 (gross) accounts receivable, before allowances for (future) estimated sales returns and uncollectible accounts.

    Gross A/R

    Begin balance, 1/1/Year 2 $ 650

    Add: credit sales 2,700

    Sub Total 3,350

    Less: collections (2,150)

    Writeoffs (40)

    Sales returns (75)

    Ending balance, 12/31/Year 2 $ 1,085

    FAR - 76! 10/15; (65) 7/15
    BEC - 82! 11/15; (74) 8/15
    AUD - 01/16
    REG - TBA

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  • #670045
    EuroAddict
    Participant

    Because those were the actual returns, not the allowance. Have to read the Q's very carefully.

    -----------------------------
    BEC - 77, 03/2015 (first try)
    FAR - 79, 05/2015 (second try)
    REG - 83, 12/2015 (first try)
    AUD - 84, 03/2015 (first try)

    I got 99 problems but the CPA ain't one.

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