E 8-5: Hachey Company & E 9-9 Optix International

E 8-5:

Hachey Company has accounts receivable of $95,100 at March 31, 2007. An analysis

of the accounts shows these amounts.

Prepare entries for recognizing

accounts receivable.



(SO 2)

Balance, March 31

Month of Sale 2007 2006

March $65,000 $75,000

February 12,600 8,000

December and January 10,100 2,400

November and October 7,400 1,100

$95,100 $86,500

Credit terms are 2/10, n/30. At March 31, 2007, there is a $2,200 credit balance in Allowance

for Doubtful Accounts prior to adjustment. The company uses the percentage of

receivables basis for estimating uncollectible accounts. The company’s estimates of bad

debts are as shown on page 402.

Estimated Percentage

Age of Accounts Uncollectible

Current 2%

1–30 days past due 7

31–90 days past due 30

Over 90 days 50

Instructions

(a) Determine the total estimated uncollectibles.

(b) Prepare the adjusting entry at March 31, 2007, to record bad debts expense.

(c) Discuss the implications of the changes in the aging schedule from 2006 to 2007.







_________________________

E 9-9

Optix International is considering a significant expansion to its product line. The

sales force is excited about the opportunities that the new products will bring. The new

products are a significant step up in quality above the company’s current offerings, but

offer a complementary fit to its existing product line. Frank Renolds, senior production

department manager, is very excited about the high-tech new equipment that will have to

be acquired to produce the new products. Carol Fischer, the company’s CFO, has provided

the following projections based on results with and without the new products.



Without New Products With New Products

Sales $10,000,000 $18,000,000

Net income $800,000 $1,800,000

Average total assets $5,000,000 $15,000,000



Instructions

(a) Compute the company’s return on assets ratio, profit margin ratio, and asset turnover

ratio, both with and without the new product line.

(b) Discuss the implications that your findings in part (a) have for the company’s decision.
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