IceKreme Inc makes ice cream machines for sale to ice

#971
IceKreme Inc. makes ice cream machines for sale to ice cream parlours. The following events
occurred between April 1 and June 30, 2014:April 10 Received an order from Peter’s
Appliances, a wholesaler, for 10 machines.April 30 Sold 15 machines to Yuri Inc. on credit.May
1 The purchasing manager of Peter’s Appliances visited IceKreme’s factory and purchased 12
machines instead of the 10 machines that were previously ordered.May 5 Yuri Inc. paid for the
machines purchased on April 30.May 7 Sold 10 machines to Cheng Ltd. on credit.May 10 Wrote
off $ 12,000 of trade receivables that were considered uncollectible. These receivables relate to
sales made prior to April 1, 2014.May 15 Peter’s Appliances returned two defective machines
and paid the amount due. June 1 Received $ 80,000 from Cheng Ltd. on account.June 30
Recovered $ 3,000 from the receivables that were written off on May 10. Additional information
is as follows:• IceKreme sold all machines at $ 10,000 per unit.• All of IceKreme’s sales were
on credit with terms 2/ 10, n/ 30.• IceKreme’s records included the following items and their
balances as at March 31, 2014:Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . $ 60,000Allowance of doubtful accounts (credit balance) . . . . . . . . . . . . . . . . . .
15,000Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
600,000Required:1. Prepare the journal entries to record the transactions that occurred from
April 1 to June 30, 2014. 2. The company uses the aging of trade receivables method to
determine the amount of bad debt expense. The estimated uncollectible rates for the various
age groups are as follows:Determine the amount of receivables that may not be collectible in
the future, and prepare the journal entry to record bad debt expense at June 30, 2014, the
company’s fiscal year- end. 3. IceKreme’s net trade receivables were $ 60,000 at June 30,
2013. Calculate IceKreme’s average collection period for fiscal year 2014 and explain its
meaning. 4. Evaluate IceKreme’s average collection period, knowing that two major
competitors, Julia Corp. and Pino Ltd., reported average collection periods of 18.3 days and
30.7 days, respectively, for fiscal year 2014.View Solution:
IceKreme Inc makes ice cream machines for sale to ice

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