# Molly and joe also determine that the average

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Molly and Joe also determine that the average accounts receivable balance outstanding during the year is 5% of net credit sales. The Maynes estimate that they could earn an average of 8% annually on cash invested in other business opportunities. Instructions With the class divided into groups, answer the following. (a) Prepare a table showing, for each year, total credit and collection expenses in dollars and as a percentage of net credit sales. (b) Determine the net credit and collection expense in dollars and as a percentage of sales after considering the revenue not earned from other investment opportunities. (c) Discuss both the financial and nonfinancial factors that are relevant to the decision. Communication Activity BYP9-5 Rene Mai, a friend of yours, overheard a discussion at work about changes her em- ployer wants to make in accounting for uncollectible accounts. Rene knows little about ac- counting, and she asks you to help make sense of what she heard. Specifically, she asks you to CRITICAL THINKING PDF Watermark Remover DEMO : Purchase from to remove the watermark

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explain the differences between the percentage-of-sales, percentage-of-receivables, and the di- rect write-off methods for uncollectible accounts. Instructions In a letter of one page (or less), explain to Rene the three methods of accounting for uncol- lectibles. Be sure to discuss differences among these methods. Ethics Case BYP9-6 The controller of Ruiz Co. believes that the yearly allowance for doubtful accounts for Ruiz Co. should be 2% of net credit sales. The president of Ruiz Co., nervous that the stock- holders might expect the company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 4%. The president thinks that the lower net in- come, which reflects a 6% growth rate, will be a more sustainable rate for Ruiz Co. Instructions (a) Who are the stakeholders in this case? (b) Does the president’s request pose an ethical dilemma for the controller? (c) Should the controller be concerned with Ruiz Co.’s growth rate? Explain your answer. ”All About You” Activity BYP9-7 As the All About You feature in this chapter (page 416) indicates, credit card usage in the United States is substantial. Many startup companies use credit cards as a way to help meet short-term financial needs. The most common forms of debt for startups are use of credit cards and loans from relatives. Suppose that you start up Brothers Sandwich Shop. You invested your savings of \$20,000 and borrowed \$70,000 from your relatives. Although sales in the first few months are good, you see that you may not have sufficient cash to pay expenses and maintain your inventory at ac- ceptable levels, at least in the short term. You decide you may need to use one or more credit cards to fund the possible cash shortfall. Instructions (a) Go to the Web and find two sources that provide insight into how to compare credit card terms. (b) Develop a list, in descending order of importance, as to what features are most important to you in selecting a credit card for your business.
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