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Mike Horn Corporation manufactures sweatshirts for sale to

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Mike Horn Corporation manufactures sweatshirts for sale to athletic-wear retailers. The following information was available for Horn for the years ended December 31, 2009 and 2010.;Compute the current ratio and the receivables turnover ratio for Horn at December 31, 2010. Use these;December 31, December 31;2009 2010;Accounting Receivables;Cash $ 20,000 $ 15,000;Trade accounts receivable 40,000?;Allowance for doubtful accounts 5,500?;Inventories 85,000 80,000;Current liabilities 80,000 86,000;Total credit sales 480,000 550,000;Collections on trade accounts receivable 440,000 500,000;During 2010, Horn had the following transactions.;1. On June 30, sales of $50,000 to a major customer were settled, with Horn accepting a 1-year $50,000 note bearing 11% interest, payable at maturity.;2. 2. Horn factors some accounts receivable at the end of the year. Accounts totaling $47,700 are transferred to First Factors, Inc. with recourse. First Factors will receive the collections from Horn customers and retain 6% of the balances. Horn is assessed a finance charge of 4% on this transfer. The fair value of the recourse obligation is $4,000.;3. 3. On the basis of the latest available information, the 2010 provision for bad debts is estimated to be 0.8%;of credit sales. Horn charged off as uncollectible, accounts with balances of $2,300.;Based on the above transaction, determine the balance for Trade Accounts Receivable and the Allowance for Doubtful Account on December 31, 2010.;Prepare the current assets section of Horn?s balance sheet at December 31, 2010. The cash balance at December 31, 2010, reflects the following items, checking account $9600, postage stamps $100, petty cash $300, currency $3000, customers checks (post dated) $2000.;Compute the current ratio and the receivables turnover ratio for Horn at December 31, 2010. Use these measures to analyze Horn?s liquidity. The receivables turnover ratio in 2009 was 10.37.;Discuss how the analysis above would be affected if Horn had transferred the receivables in a secured borrowing transaction.

 

Paper#26187 | Written in 18-Jul-2015

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