On May 3, Mary Ann Bought a 2-Year Membership in a Fitness

question 43

Short Answer

On May 3, Mary Ann bought a 2-year membership in a fitness club for $495, on a special promotion. Cancellation is allowed at any time. A prorated refund will be paid based upon the number of days remaining in the membership period. If she cancelled the membership on the following September 9, what refund should she receive? (Count both May 3 and September 9 as days used.)

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Definitions:

Balance Sheet Approach

A method used to calculate the amount required in the Allowance for Doubtful Accounts to cover expected uncollectibles. This method is based on the Accounts Receivable amount and the aging process. The adjustment to the Allowance for Doubtful Accounts will bring the new balance of that account to the new required level.

Bad Debts Expense

The portion of receivables that a company does not expect to collect and writes off as a loss.

Gross Accounts Receivable

The total amount owed to a company by its customers for goods or services sold on credit before any deductions for returns or allowances.

Aging of Accounts Receivable

The process of categorizing accounts receivable according to the length of time an invoice has been outstanding.