Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 8 Receivables 391

The following were selected from among the transactions completed by Hunter Co. during the

current year. Hunter Co. sells and installs home and business security systems.

Jan. 8 Loaned $8,500 cash to Mark Tift, receiving a 90-day, 8% note.

Feb. 3 Sold merchandise on account to Messina and Son, $16,000. The cost of the merchandise

sold was $9,000.

Feb. 12 Sold merchandise on account to Gwyn Co., $27,500. The cost of merchandise sold was

$15,750.

Mar. 5 Accepted a 60-day, 6% note for $16,000 from Messina and Son on account.

14 Accepted a 60-day, 12% note for $27,500 from Gwyn Co. on account.

Apr. 9 Received the interest due from Mark Tift and a new 90-day, 9% note as a renewal of

the loan of January 8. (Record both the debit and the credit to the notes receivable

account.)

May 4 Received from Messina and Son the amount due on the note of March 5.

13 Gwyn Co. dishonored its note dated March 14.

June 12 Received from Gwyn Co. the amount owed on the dishonored note, plus interest for 30

days at 12% computed on the maturity value of the note.

July 8 Received from Mark Tift the amount due on his note of April 9.

Aug. 23 Sold merchandise on account to MacKenzie Co., $10,000. The cost of the merchandise

sold was $6,500.

Sept. 2 Received from MacKenzie Co. the amount of the invoice of August 23, less 1%

discount.

Instructions

Journalize the transactions.

Alternate Problem
8-6B

Sales and notes receivable
transactions

Goal 6

GENERAL LEDGER

Case 8-1

Accounts receivable turnover
and days’ sales in receivables

Year Ending

Feb. 26, 2005 Feb. 28, 2004

Net sales $27,433 $24,548

Accounts receivable at end of year 375 343

Assume that the accounts receivable (in millions) were $312 at the beginning of the year

ending February 28, 2004.

1. Compute the accounts receivable turnover for 2005 and 2004. Round to one decimal place.


2. Compute the days’ sales in receivables at the end of 2005 and 2004.


3. What conclusions can be drawn from (1) and (2) regarding Best Buy’s efficiency in collect-
   ing receivables?


4. For its years ending in 2005 and 2004, Circuit Cityhas an accounts receivable turnover of
   61.0 and 56.3, respectively. Compare Best Buy’s efficiency in collecting receivables with that
   of Circuit City.


5. What assumption did we make about sales for the Circuit City and Best Buy ratio compu-
   tations that might distort the two company ratios and therefore cause the ratios not to be
   comparable?

Best Buyis a specialty retailer of consumer electronics, including personal computers, enter-

tainment software, and appliances. Best Buy operates retail stores in addition to the Best Buy,

Media Play, On Cue, and Magnolia Hi-Fi Web sites. For the years ending February 26, 2005, and

February 28, 2004, Best Buy reported the following (in millions):

FINANCIAL ANALYSIS AND REPORTING CASES