ACG2021 Ch. 8
On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $21,000. During the year, it had net credit sales of $900,000 and it had $20,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 6% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?
$11,000 After the write-offs are recorded (but before the year-end adjusting entry), Allowance for Doubtful Accounts will have a credit balance of $1,000 ($21,000 credit beginning balance combined with a $20,000 debit for the write-offs). Using the percentage of receivables basis, the balance in the allowance account needs to be a credit balance of $12,000 (i.e., $200,000 x 6%). In order to have an ending balance of $12,000, a credit entry of $11,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $11,000.
Lansing Construction Company had the following receivables: Accounts receivable $ 9,000 Employee advances $ 1,000 Income taxes refundable 2,000 Interest receivable 500 Loans to company officers 1,200 Notes receivable (i.e., promissory notes from customers in exchange for services performed by Lansing Construction Co. 3,300 Notes receivable (i.e., promissory notes obtained from creditors who purchased used equipment from Lansing Construction Co. 4,000 Based on this information, what is the company's trade receivables?
$12,300 Trade receivables derive from transactions with a company's customers. Virtually all accounts receivable are trade receivables. If a note receivable results from a sale on account with a customer, it is considered to be a trade receivable. However, other notes receivable and other receivables are not trade receivables. Trade receivables = $9,000 + 3,300 = $12,300
Lansing Construction Company had the following receivables: Accounts receivable $ 9,000 Employee advances $ 1,000 Income taxes refundable 2,000 Interest receivable 500 Loans to company officers 1,200 Notes receivable (i.e., promissory notes from customers in exchange for services performed by Lansing Construction Co. 3,300 Notes receivable (i.e., promissory notes obtained from creditors who purchased used equipment from Lansing Construction Co. 4,000 Based on this information, what is the company's trade receivables?
$12,300 Trade receivables = $9,000 + 3,300 = $12,300
Lansing Construction Company had the following receivables: Employee advances $ 500 Notes receivable (i.e., promissory notes from customers in exchange for services performed by Lansing Construction Co. 3,500 Income taxes refundable 2,000 Accounts receivable 13,000 Notes receivable (i.e., promissory notes obtained from creditors who purchased used equipment from Lansing Construction Co. 3,000 Interest receivable 200 Loans to company officers 4,400 Based on this information, what is the company's trade receivables?
$16,500 Trade receivables = $13,000 + 3,500 = $16,500
How much accrued interest should be reported on the payee's December 31 balance sheet on a $6,000, 7%, 9-month note receivable issued on August 1?
$175
How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?
$233
How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?
$233 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $5,000 x 8% x 7/12 = $233 Remember, all interest rates are annual interest rates unless designated otherwise.
On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $21,000. During the year, it had net credit sales of $800,000 and it had $25,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 8% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $300,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?
$28,000
On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?
$32,000
On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit balance of $18,000. During the year, it had net credit sales of $750,000 and it had $30,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the required credit adjustment to the Allowance for Doubtful Accounts at December 31?
$32,000 After the write-offs are recorded (but before the year-end adjusting entry), Allowance for Doubtful Accounts will have a debit balance of $12,000 (i.e., $18,000 credit beginning balance combined with a $30,000 debit for the write-offs). Using the percentage of receivables basis, the balance in the allowance account needs to be a credit balance of $20,000 (i.e., $200,000 x 10%). In order to have an ending balance of $20,000, a credit entry of $32,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $32,000.
How much accrued interest should be reported on the payee's December 31 balance sheet on a $8,000, 9%, 9-month note receivable issued on May 1?
$480
How much accrued interest should be reported on the payee's December 31 balance sheet on a $8,000, 9%, 9-month note receivable issued on May 1?
$480 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $8,000 x 9% x 8/12 = $480 Remember, all interest rates are annual interest rates unless designated otherwise.
The following information relates to the beginning of the year: Accounts receivable, $370,000 Allowance for doubtful accounts (credit balance), $18,500 During the current year, sales on account were $1,200,000 and collections on account were $1,250,000. Also during the current year, the company wrote off $17,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $16,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?
$64,500 decrease Ending accounts receivable, $370,000 + 1,200,000 - 1,250,000 - 17,000 = 303,000 Ending allowance for doubtful accounts, $16,000 (given) Ending cash realizable value, $303,000 - 16,000 = 287,000 Beginning cash realizable value, $370,000 - 18,500 = $351,500 Increase (decrease) in cash realizable value, $287,000 - 351,500 = ($64,500) Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.
On June 15, Kelsey Company sold merchandise on account to Buyer Co. for $1,000 with terms 2/10, n/30. On June 20, Buyer Co. returns $300 of merchandise to Kelsey Company. On June 24, Buyer Co. pays the balance due. What is the amount of cash received by Kelsey Company on June 24?
$686 The amount received on June 24 is $686. Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 - return of $300) minus the 2% discount of $14 ($700 x 2%), for a cash amount of $686.
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $900,000; Allowance for doubtful accounts balance before adjustment (credit balance), $18,000; Amounts expected to become uncollectible, $60,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?
$840,000
The following information relates to the beginning of the year: Accounts receivable, $245,000 Allowance for doubtful accounts (credit balance), $12,250 During the current year, sales on account were $1,100,000 and collections on account were $990,000. Also during the current year, the company wrote off $14,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $17,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?
$91,250 increase Ending accounts receivable, $245,000 + 1,100,000 - 990,000 - 14,000 = 341,000 Ending allowance for doubtful accounts, $17,000 (given) Ending cash realizable value, $341,000 - 17,000 = 324,000 Beginning cash realizable value, $245,000 - 12,250 = $232,750 Increase (decrease) in cash realizable value, $324,000 - 232,750 = $91,250
The following information relates to the beginning of the year: Accounts receivable, $245,000 Allowance for doubtful accounts (credit balance), $12,250 During the current year, sales on account were $1,100,000 and collections on account were $990,000. Also during the current year, the company wrote off $14,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $17,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?
$91,250 increase Ending accounts receivable, $245,000 + 1,100,000 - 990,000 - 14,000 = 341,000 Ending allowance for doubtful accounts, $17,000 (given) Ending cash realizable value, $341,000 - 17,000 = 324,000 Beginning cash realizable value, $245,000 - 12,250 = $232,750 Increase (decrease) in cash realizable value, $324,000 - 232,750 = $91,250
Net credit sales are $900,000, average inventory totals $60,000, average net receivables total $50,000, and the allowance for doubtful accounts totals $5,000. How much is the average collection period (also known as the days in receivable ratio)?
20.277 days
Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.50. What is its average collection period (also known as the days in receivable ratio)?
48.67 days
Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (also known as the days in receivable ratio)?
52 days Solution: The average collection period is computed by dividing the number of days in the year by the accounts receivable turnover. The average collection period = 365/7 = 52 days.
Edward Corporation had net credit sales during the year of $400,000 and cost of goods sold of $150,000. The net accounts receivable at the beginning of the year was $60,000 and at the end of the year was $70,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,300,000. How much is the accounts receivables turnover?
6.15 Solution: The accounts receivable turnover ratio measures the liquidity of receivables. This ratio measures the number of times a company collects its net accounts receivable average balance. The accounts receivables turnover is computed by dividing net credit sales by average net accounts receivable. Accounts receivable turnover = $400,000/[($60,000 + $70,000)/2] = 6.15. The company's average accounts receivable for the year is $65,000. Its net credit sales are 6.15 times its average balance suggesting the company collected the equivalent of its average accounts receivable 6.15 times during the year.
Edward Corporation had net credit sales during the year of $400,000 and cost of goods sold of $150,000. The net accounts receivable at the beginning of the year was $60,000 and at the end of the year was $70,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,300,000. How much is the accounts receivables turnover?
6.15 The accounts receivable turnover ratio measures the liquidity of receivables. This ratio measures the number of times a company collects its net accounts receivable average balance. The accounts receivables turnover is computed by dividing net credit sales by average net accounts receivable. Accounts receivable turnover = $400,000/[($60,000 + $70,000)/2] = 6.15. The company's average accounts receivable for the year is $65,000. Its net credit sales are 6.15 times its average balance suggesting the company collected the equivalent of its average accounts receivable 6.15 times during the year.
Edward Corporation had net credit sales during the year of $750,000 and cost of goods sold of $500,000. The net accounts receivables at the beginning of the year was $75,000 and at the end of the year was $110,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover?
8.11
When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?
A debit to Cash, a credit to Notes Receivable, and a credit to Interest Revenue
On May 2, Cartwright Company receives a $3,000, 4-month, 10% note from Fulton Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?
A debit to Notes Receivable for $3,000 and a credit to Accounts Receivable for $3,000
On May 2, Cartwright Company receives a $5,000, 6-month, 10% note from Sheldon Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?
A debit to Notes Receivable for $5,000 and a credit to Accounts Receivable for $5,000
Which one of these statements about promissory notes is incorrect?
A promissory note is not a negotiable instrument.
Offering discounts for early payment is a method used by companies to
Accelerate the collection of cash
Which of the following are used to compute cash realizable value?
Accounts Receivable and Allowance for Doubtful Accounts
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?
Accounts Receivable is credited.
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?
Allowance for Doubtful Accounts is debited.
A 45-day promissory note is issued on July 1. What is the note's maturity date?
August 15
A 120-day promissory note is issued on April 11. What is the note's maturity date?
August 9
Which one of the following accounts is a temporary account?
Bad Debts Expense
Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end. The total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $200 before the year-end adjusting entry for Bad Debt Expense?
Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000
Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end. The total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $200 before the year-end adjusting entry for Bad Debt Expense?
Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000 he Allowance for Doubtful Accounts needs an ending credit balance of 3% of $60,000 or $1,800. Since the pre-adjusted debit balance is $200, a credit of $2,000 is necessary to increase it to $1,800. The journal entry will record a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $2,000.
Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?
Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900
Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?
Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900 The Allowance for Doubtful Accounts needs an ending credit balance of 3.5% of $80,000 or $2,800. Since the pre-adjusted debit balance is $100, a credit of $2,900 is necessary to increase it to $2,800. The journal entry will record a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $2,900.
Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200
Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 Allowance for Doubtful Accounts needs an ending credit balance of 4% of $100,000 or $4,000. To increase the current credit balance of $800 to the required amount of $4,000, the account requires a credit of $3,200. The entry to estimate bad debts is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $3,200.
Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $120,000 at year-end and the total credit sales were $900,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $600 before adjustment?
Bad Debts Expense 4,200 Allowance for Doubtful Accounts 4,200
Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $150,000 at year-end and the total credit sales were $700,000. Management estimates that 5% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
Bad Debts Expense 6,700 Allowance for Doubtful Accounts 6,700 Allowance for Doubtful Accounts needs an ending credit balance of 5% of $150,000 or $7,500. To increase the current credit balance of $800 to the required amount of $7,500, the account requires a credit of $6,700. The entry to estimate bad debts is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $6,700. Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.
Which one of the following statements is true?
Bad Debts Expense is a temporary account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a permanent account and remains open at the end of the fiscal period.
In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 16.0 Beta 18.1 Gamma 15.5 Delta 11.9 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?
Beta
Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction?
Cash for $48,000 and Service Charge Expense for $2,000
At what value are accounts receivable reported on the balance sheet?
Cash realizable value
Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?
Credit balance of $12,000 The ending balance in the allowance account (i.e., Allowance for Doubtful Accounts) needs to be a credit balance equal to 7.5% of $160,000, or $12,000.
Net credit sales for the month are $5,000,000 for Karl Clothiers. Its accounts receivable balance is $180,000. The allowance is calculated as 8.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $6,000 before adjustment. How much is the balance of the allowance account after adjustment?
Credit balance of $15,300
Net credit sales for the month are $6,000,000 for Stacy Clothiers. Its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment?
Credit balance of $21,000
A bank holds a 60-day, 7%, $27,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
Credit to Interest Revenue for $315
A bank holds a 60-day, 7%, $27,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
Credit to Interest Revenue for $315 The bank's journal entry will decrease Notes Receivable for the value of the note, recognize Interest Revenue for the term of the note, and increase the Cash account for the total owed by the maker including principal and interest. The bank's journal entry is: Debit: Cash 27,315 Credit: Notes Receivable 27,000 Credit: Interest Revenue 315 (i.e., $27,000 x 7% x 60/360 = $315)
A bank holds a 30-day, 9%, $20,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
Credit to Notes Receivable for $20,000
When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first?
Debit Accounts Receivable and credit Allowance for Doubtful Accounts
Schmidt Co. holds Murphy Inc.'s $10,000, 120-day, 6% note. What is the entry to be made by Schmidt Co. when the note is collected, assuming no interest has previously been accrued?
Debit Cash for $10,200, credit Notes Receivable for $10,000, and credit Interest Revenue for $200 When Schmidt receives payment, it will increase cash, reduce the notes receivable account, and recognize interest earned for the term of the note. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. When days are used, use 360 as the number of days in a given year—this is an old rule of thumb that simplifies the math and earns more interest for the creditor. Interest = $10,000 × 6% × 120/360 = $200. Total cash received = $20,000 + 400 = $10,200.
Laurel Company factors $300,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
Debit Cash for $291,000, debit Service Charge Expense for $9,000, and credit Accounts Receivable for $300,000
Laurel Company factors $400,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
Debit Cash for $388,000, debit Service Charge Expense for $12,000, and credit Accounts Receivable for $400,000
Laurel Company factors $400,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?
Debit Cash for $388,000, debit Service Charge Expense for $12,000, and credit Accounts Receivable for $400,000 This entry records the receipt of cash as a debit for $388,000, recognizes the service charge expense based on a percentage of the receivables as a debit to Service Charge Expense for $12,000, and reduces accounts receivable with a credit for the face value of the receivables that are sold, which is $400,000. Chapter 8, Learning objective 9: Describe methods to accelerate the receipt of cash from receivables.
Baker Co. loaned $30,000 to Idaho Co. on May 1, at 10% interest for 3 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
Debit Interest Receivable for $500 and credit Interest Revenue for $500 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $30,000 x 10% x 2/12 = $500 Remember, all interest rates are annual interest rates unless designated otherwise.
Baker Co. loaned $30,000 to Idaho Co. on April 1, at 12% interest for 4 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
Debit Interest Receivable for $900 and credit Interest Revenue for $900
Baker Co. loaned $30,000 to Idaho Co. on April 1, at 12% interest for 4 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
Debit Interest Receivable for $900 and credit Interest Revenue for $900 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 4-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $30,000 x 12% x 3/12 = $900 Remember, all interest rates are annual interest rates unless designated otherwise.
A bank holds a 120-day, 10%, $21,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
Debit to Cash for $21,700 The bank's journal entry will decrease Notes Receivable for the value of the note, recognize Interest Revenue for the term of the note, and increase the Cash account for the total owed by the maker including principal and interest. The bank's journal entry is: Debit: Cash 21,700 Credit: Notes Receivable 21,000 Credit: Interest Revenue 700 (i.e., $21,000 x 10% x 120/360 = $700)
Kensington Company sold $6,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington's bank charges it a 4% fee. Which one of the following is part of the journal entry to record this transaction?
Debit to Cash for $5,760
Kensington Company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington's bank charges it a 5% fee. Which one of the following is part of the journal entry to record this transaction?
Debit to Cash for $6,650 The fee is 5% times $7,000, or $350. Kensington will receive the difference between the face amount of the receivables and the fee, or $6,650. The journal entry includes a debit to cash for $6,650, a debit to Service Charge Expense for $350, and credit to sales for $7,000.
Which one of the following is not one of the five basic issues in accounting for notes receivable?
Determining the recipient
When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries?
First Accounts Receivable and second Cash
When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be credited in these two journal entries?
First the Allowance for Doubtful Accounts and second Accounts Receivable
In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 14.0 Beta 16.5 Gamma 9.5 Delta 11.5 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the lowest likelihood of paying its current obligations?
Gamma
Which of these statements about national credit card (e.g., Visa) sales is false?
The retailer conducts the credit investigation of the customer
Which of these statements about national credit card (e.g., Visa) sales is false?
The retailer conducts the credit investigation of the customer.
If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes
a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800.
Michael Co. accepts a $4,000, 3-month, 8% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as
a debit to Notes Receivable for $4,000 and a credit to Accounts Receivable for $4,000.
Michael Co. accepts a $6,000, 3-month, 12% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as
a debit to Notes Receivable for $6,000 and a credit to Accounts Receivable for $6,000.
A company uses the allowance method for uncollectible accounts. Last year, a customer purchased $100 of services on account from the company. In the current year, the company is notified that the customer is bankrupt and will not pay the company the amount owed. What journal entry does the company record when it is notified that the customer will not pay?
debit Allowance for Doubtful Accounts and credit Accounts Receivable.
If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts the recovery
does not affect the company's total assets in the period it is collected
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited
when an account is determined to be uncollectible
Which one of the following is not a method used by companies to accelerate cash receipts?
Allowing customers to settle their accounts by issuing notes
When is a receivable recorded by a merchandiser?
At the point of sale of the merchandise on account
Which one of the following is not one of the principles of managing accounts receivable?
Cross-indexing journal-entries with the postings to the ledger
Baker Co. loaned $30,000 to Idaho Co. on May 1, at 10% interest for 3 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?
Debit Interest Receivable for $500 and credit Interest Revenue for $500
A bank holds a 120-day, 10%, $21,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?
Debit to Cash for $21,700
Which one of the following is not one of the principles of managing accounts receivable?
Determining from which vendor credit should be requested
On the date a 90-day note is honored, how much cash will the payee receive?
Face value plus 90 days of interest
Which one of the following is not one of the five basic issues in accounting for notes receivable?
Filing notes receivable Filing notes receivable
When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.
Increases; crediting
At what value are accounts receivable reported on the balance sheet?
Net realizable value
Which one of these statements about promissory notes is correct?
Notes receivable are formal agreements.
If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?
Provide the customer a lengthy payment period
Which one of the following is not one of the five basic issues in accounting for notes receivable?
Realizing notes receivable
When the allowance method for uncollectible accounts is used, a company records Bad Debt Expense when
adjusting entries are recorded.
Under the allowance method, writing off an uncollectible account
affects two balance sheet accounts.
Short-term notes receivable are reported in the current assets section of the balance sheet at
cash realizable value.
Writing-off a specific customer's accounts receivable under the allowance method
does not affect the balance of Cash.
The direct write-off method of accounting for bad debts
does not require estimates of bad debt expense
The account called Allowance for Doubtful Accounts
is deducted from accounts receivable on the balance sheet to compute cash realizable value.
The balance of Allowance for Doubtful Accounts prior to recording the end of year adjusting entry to record Bad Debt Expense
is relevant when using the percentage-of-receivables basis.
Accounts receivable are reported in the current assets section of the balance sheet at
net realizable value
Factoring is the process of
selling accounts receivable at a discount to another party.
If a company that uses the allowance method for uncollectible accounts collects an account receivable after having been previously written it off
there will be both a debit and a credit to accounts receivable.
