Bradford Corporation reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012. Allowance for bad debts was $40,000, ending 2012. Rounding to two decimal places, what is Bradford's allowance ratio for 2012?

Question

Quizplus · Accepted Answer

First, we need to calculate the accounts receivable turnover:
Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Average Accounts Receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) / 2
Assuming the beginning net accounts receivable was also $380,000, we get:
Accounts Receivable Turnover = $2,600,000 / $380,000 = 6.84
Next, we can calculate the average collection period:
Average Collection Period = 365 / Accounts Receivable Turnover = 365 / 6.84 = 53.36 days
Finally, we can calculate the allowance ratio:
Allowance Ratio = Allowance for Bad Debts / Net Accounts Receivable = $40,000 / $380,000 = 0.1053 or 10.53%
Therefore, the closest option is B) 9.52%.

Bradford Corporation Reported Net Accounts Receivable of $380,000 and Net