The Records of Morgantown, Inc Collection Pattern:
60 Percent in Month of Sale
40 Percent

question 138

Multiple Choice

The records of Morgantown, Inc.show the following forecasted sales: $\begin{array} { l r } \text { Month } & \text { Sales } \\ \text { September } & \$ 400,000 \\ \text { October } & 500,000 \\ \text { November } & 300,000 \\ \text { December } & 200,000 \end{array}$
Collection pattern:
60 percent in month of sale
40 percent in month following the sale
$\begin{array}{lr}\text { Accounts receivable as of August } 31 & \$ 70,000 \\\text { Finished goods inventory as of August } 31 & 8,000 \text { units }\end{array}$ The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 20 percent of next month's sales.
How much is Accounts Receivable as of October 31?

• A)$420,000
• B)$460,000
• C)$240,000
• D)none of the above

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Definitions:

Bad Debts Expense

An expense account reflecting the value of sales that were made on credit and are unlikely to be collected.

Income Statement Approach

A method to estimate bad debts expense by focusing on the income statement and adjusting the allowance for doubtful accounts to reach a desired net realizable value.

Bad Debts Expense

The cost associated with the estimated amount of receivables that a company is unable to collect from its customers.

Balance Sheet Approach

A method used for estimating uncollectible accounts by analyzing the accounts receivable on the balance sheet.