Accounting 201 - Chapter 8

True or False: Companies report short-term notes receivable at their cash (net) realizable value.

True

True or False: Notes and accounts receivable that result from sales transactions are often called trade receivables.

True

The interest rate specified in a note is for a

year

The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to

Accounts Receivable.

True or False: A cash discount can occur when a seller wants to encourage early payment of an accounts receivable.

True

True or False: Cash (net) realizable value is the net amount the company expects to receive in cash from collecting its accounts receivable.

True

Which of the following statements about Visa credit card sales is incorrect? A.The credit card issuer makes the credit investigation of the customer. B.The retailer is not involved in the collection process. C.Two parties are involved. D.The retailer receives cash more quickly than it would from individual customers on account.

Two parties are involved.

When a note receivable is dishonored,

accounts receivable is debited if eventual collection is expected.

Accounts and short-term notes receivable are reported in the current assets section of the balance sheet at

cash (net) realizable value.

Companies report accounts receivable on the balance sheet at

cash (net) realizable value.

Short-term notes receivable are reported at

cash (net) realizable value.

The accounts receivable turnover ratio is computed by dividing

net credit sales by average net accounts receivable.

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the

percentage of receivables basis.

The percentage-of-sales basis of estimating uncollectibles

results in a better matching of expenses with revenues.

In 2014, Roso Carlson Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2014?

$10,500.

On February 1, Kline Company received a $6,000, 10%, four-month note receivable. The cash to be received by Kline Company when the note becomes due is

$6,200.

Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible In this situation, the amount of bad debts expense that should be reported for the year is

$65,000.

Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received?

$686.

The average collection period is computed by dividing

365 days by the accounts receivable turnover ratio.

Which of the following approaches for bad debts is best described as a balance sheet method? A.Percentage-of-receivables basis. B.Direct write-off method. C.Percentage-of-sales basis. D.Both direct write-off method and percentage-of-receivables basis.

A) Percentage-of-receivables basis.

Under the allowance method, estimated uncollectible receivables are credited to

Allowance for Doubtful Accounts.

True or False: To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.

False

Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is

Deb: Cash 10,300 Cred: Notes Receivable 10,000 Cred: Interest Revenue 300

True or False: Retailers consider sales from the use of national credit cards as credit sales.

False

True or False: The percentage-of-receivables basis results in a better matching of expenses with revenues than the percentage-of-sales basis.

False

In recording the sale of accounts receivable, the commission charged by a factor is recorded as

Service Charge Expense.

Bond Company recorded bad debts expense of $35,000 and wrote off accounts receivable of $20,000 during the current year. The net effect of these two transactions on net income was

a decrease of $35,000.

The sale of receivables by a business

can be a quick way to generate cash for operating needs.

When a note is accepted to settle an open account, Note Receivable is debited for the note's

face value.

The direct write-off method

shows only actual losses from uncollectible accounts.

Notes or accounts receivables that result from sales transactions are often called

trade receivables.