1. a. total assets turnover for the recent two year for both companies:
Asset turnover is a financial ratio that estimates the effective use of assets of a company to generate income and revenue. Asset turnover = (total revenue or sales)/ (assets)
The assets turnover for the year 2005 and 2006 for both Kreme and Tastycake are as follows
In 2005 the kreme company has an asset turnover ratio of 1.54 while the tasty cake company has an asset turnover ratio of 1.43. In 2006 the kreme company has an asset turnover ratio of 1.19 while the tasty cake company has a turnover ratio of 1.39.
b. Which company is more efficient?
The company that is more efficient in generating more sales through the use o0f its assets according to the year 2005 was the Kreme company, in 2005 the turnover for tasty cake was 1.43 which was lower than the Kreme company which was 1.54, therefore the company that produces is more efficient in the year 2005 was Kreme.
In 2006 the tasty cake company has a higher asset turnover than the Kreme Company; the Kreme asset turnover ratio is equal to 1.197 which is lower compared to the Tasty cake company whose value of turnover is 1.39. Therefore in the year 2006 the tasty cake company has a higher turnover ratio as compared to the other company.
The Kreme Company employs more assets in it production process, despite is high capital it is not as efficient as the tasty cake company which uses much less capital and it still achieves a higher asset turnover ratio in 2006. Therefore the tasty cake company is more efficient in generating net sales as compared to the Kreme Company.
2. Bad Debts expense is estimated to be $59,000 and Receivable amount to $1,750,000, less a $43,000 allowance for Doubtful accounts.
Bad debts can be defined as the portion of the receivables that are cannot be collected, the bad debt is applied to debtor’s accounts. For this reason the bad debts are usually considered as an expense in accounting. Allowance for doubtful debts or bad debts is the value which is recorded in the books of account in order to estimate the net realizable receivables as a result of the risk that is involved if debtors fail to pay for their debts.
Bad debt is therefore an expense while the allowance for doubtful or bad debts is an account that is held for the purpose of estimating the net receivables.
When sales are made then we estimate the bad debts and make a contra entry in the books of account, this is done by making a contra entry in the books of account in the account receivables and also in the allowance of doubtful debts, because the bad debts are an …