Hachey Company has accounts receivable of $95,100 at March 31, 2007. An analysis
of the accounts shows these amounts.
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
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
Age of Accounts Uncollectible
1–30 days past due 7
31–90 days past due 30
Over 90 days 50
(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.
E9-9 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
(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.