Mike Horn Corporation manufactures sweatshirts for sale to athletic-wear retailers. The following information was available for Horn for the years ended December 31 2011 and 2012.December 31 December 31 2011 2012Cash $ 20 000 $ 15 000Accounts receivable 40 000 ? Allowance for doubtful accounts 5 500 ?Inventories 85 000 80 000 Current liabilities 80 000 86 000Total credit sales 480 000 550 000Collections on trade accounts receivable 440 000 500 000During 2010 Horn had the following transactions.1. On June 30 sales of $50 000 to a major customer were settled with Horn accepting a 1-year $50 000 note bearing 11% INTEREST payable at maturity.2. 2. Horn factors some accounts receivable at the end of the year. Accounts totaling $47 700 are transferred to First Factors Inc. with recourse. First Factors will receive the collections from Horn customers and retain 6% of the balances. Horn is assessed a finance charge of 4% on this transfer. The fair value of the recourse obligation is $4 000.3. 3. On the basis of the latest available information the 2010 provision for bad DEBTS is estimated to be 0.8%of credit sales. Horn charged off as uncollectible accounts with balances of $2 300.- Based on the above transaction determine the balance for Trade Accounts Receivable and the Allowance for Doubtful Account on December 31 2010.- Prepare the current assets section of Hornӳ balance sheet at December 31 2010. The cash balance at December 31 2010 reflects the following items; checking account $9600; postage stamps $100; petty cash $300; CURRENCY $3000; customers checks (post dated) $2000.- Compute the current ratio and the receivables turnover ratio for Horn at December 31 2010. Use these measures to analyze Hornӳ liquidity. The receivables turnover ratio in 2009 was 10.37.- Discuss how the analysis above would be affected if Horn had transferred the receivables in a secured borrowing transaction.
