ACCT Ch 7

On December 31, Year 2 before adjustments, Silver Co.'s Accounts Receivable account balance was $20,000 and the Allowance for Doubtful Accounts account balance was $300. Silver estimates uncollectible accounts to be 5% of accounts receivable. The Allowance for Doubtful Accounts shown on the Year 2 balance sheet is ______.

$1,000

Jack Company loaned $12,000 to Jill Company on September 1, Year 1 for a one year term at 5% interest. On December 31, Year 1, Jack will recognize accrued interest of ______.

$200

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest. In Year 2,when the note matures, Alpha will recognize accrued interest of ______.

$225

Barton Enterprises estimated the net realizable value of its $58,000 of receivables to be $55,000. The company's allowance for doubtful accounts is ______.

$3,000

Jack Company loaned $12,000 to Jill Company on September 1, Year 1 for a one year term at 5% interest. In Year 2, when the note matures, Jack will recognize interest revenue of ______.

$400

Barton Enterprises had total accounts receivable of $63,000 and estimated that $4,500 of its receivables will not be collected. The net realizable value of Barton's receivables is ______.

$58,500

Barton Enterprises estimates that 1% of revenue will be uncollectible. If Barton's revenue for the year is $250,000, and ending accounts receivable equals $102,500, the uncollectible accounts expense shown on the income statement, using the percent of revenue method, will be $ .

2,500

Barton Enterprises estimates that 1% of revenue will be uncollectible. If Barton's revenue for the year is $250,000, and ending accounts receivable equals $102,500, the uncollectible accounts expense shown on the income statement, using the percent of revenue method, will be $_____.

2500

Able Company loaned $10,000 to Jill Company on June 1, Year 1 for a one year term at 9% interest. In Year 2, when the note matures, Able will recognize accrued interest revenue of $_____.

375

Which methods of estimating uncollectible accounts provides the best measure of the allowance for doubtful accounts?

Aging of receivables Percent of receivables

Collecting cash on a credit card receivable affects the ______.

Balance Sheet Statement of Cash Flows

Loaning money (investing in a notes receivable) impacts the ______.

Balance Sheet Statement of Cash Flows

True or false: Recording the year-end adjustment for uncollectible accounts expense directly reduces the Accounts Receivable account.

False

Which of the following statements about aging accounts receivable is true?

Higher percentages are applied to older accounts.

Which of the following are potential costs of extending credit?

Implicit interest Additional record keeping costs Uncollectible accounts expense

Accepting a credit card with a fee for services rendered affects the ______.

Income Statement Balance Sheet

Which of the following is not a common feature of a promissory note?

Payor

Which method of estimating uncollectible accounts focuses on the measurement of net income?

Percent of revenue

A promissory note is ______.

a legally documented credit agreement often used when a company extends credit for a long time

A note receivable is usually required when ______.

a longer credit term is needed the size of the receivable is large

A company experienced an event that caused total assets and net income to increase, but had no affect on cash flow. This could have been caused by ______.

accepting a credit card for services provided

An account receivable is created when a company ______.

allows a customer to buy now and pay later

The allowance for doubtful accounts is ______.

an estimate that represents the amount of accounts receivable a company expects to be uncollectible

When a company uses the allowance method and reinstates an account receivable that had previously been written-off, total assets ______.

and cash flow from operating activities both do not change

Cash collected on a receivable is a(n) ______ transaction.

asset exchange

Investing in a note receivable (loaning money) is a(n) ______ transaction.

asset exchange

The cash collection of a note receivable and the related interest receivable at maturity date is a(n) ______ transaction.

asset exchange

Revenue earned on account is a(n) ______ transaction.

asset source

Disadvantage of using the direct write-off method of recognizing uncollectible accounts expense include ______.

assets are overstated expenses are not matched with revenue.

An operating cycle is the ______.

average days to collect receivables plus the average days to sell inventory

Uncollectible accounts expense is frequently called _____ _____ expense.

bad debts

Recognizing uncollectible accounts expense under the direct write-off method affects the ______.

balance sheet income statement

Recording revenue on accounts impacts the ______.

balance sheet income statement

When a company uses the percent of revenue method, adopting more rigorous credit standards will likely ______ the percentage use.

decrease

When a company recognizes uncollectible accounts expense, total ______.

equity decreases net income decreases assets decrease

The percent of receivables method of estimating uncollectible accounts expense focuses on ______.

estimating the most accurate balance for the allowance for doubtful accounts

The cash collection of a note receivable and the related interest receivable at maturity date ______.

has no effect on the income statement has no net effect on the balance sheet

Other things being equal, a company would prefer that its accounts receivable turnover ratio be ______.

high

Making the year-end adjustment for uncollectible accounts expense impacts the ______.

income statement balance sheet

When a company reinstates an account receivable that was written off using the direct-write off method, there is an effect on the ______.

income statement balance sheet

When a company reinstates an account receivable that had previously been written-off, the balance of the Accounts Receivable and Allowance for Doubtful Accounts account both ______.

increase

When a company uses the direct write-off method and reinstates an account receivable that had previously been written-off, total assets ______.

increase and cash flow from operating activities does not change

The collection of a reinstated receivable will

increase cash and decrease accounts receivable

Recognizing uncollectible accounts expense under the direct write-off method includes a(n) ______.

increase to uncollectible accounts expense and a decrease to accounts receivable

Fran Company recognized accrued interest revenue. On Fran's financial statements, net income ______.

increases but cash flow from operating activities is not affected

The longer an account receivable remains outstanding, the _____ likely it is to be collected.

less

The borrower or debtor on a promissory note is typically referred to as the _____ of the note.

maker

The higher a company's accounts receivable turnover ratio, the ______ the collection period.

shorter

Collecting an account receivable impacts the ______.

statement of cash flows balance sheet

The net realizable value of accounts receivable is ______.

the ending balance of accounts receivable less an allowance representing the amount of accounts a company expects to be uncollectible an estimate that represents the amount of cash a company expects to collect from its accounts receivable

The collection of a receivable due from a credit card company has no effect on _____.

total assets the income statement

The percentage used to estimate uncollectible accounts expense under the percent of revenue method is ______.

usually based on past collection experiences sometimes adjusted for anticipated future circumstances

Under the direct write-off method, uncollectible accounts expense is recognized ______.

when an account is determined to be uncollectible

Businesses typically recognize accrued interest ______.

when financial statements are prepared when interest is due

A company experienced an event that had no affect on total assets, net income, or cash flow. This event could have been due to ______.

writing off an uncollectible account

Frost Company accepted a credit card for $6,000 of services it provided to a customer. The credit card carried a card fee amounting to 5% of sales. Recognizing this event would cause increases of ______.

$5,700 to Accounts Receivable $6,000 to Service Revenue $300 to Credit Card Expense

On December 31, Year 2 before adjustments, Silver Co.'s Accounts Receivable account balance was $20,000 and the Allowance for Doubtful Accounts account balance was $300. Silver estimates uncollectible accounts to be 5% of accounts receivable. The Year 2 uncollectible accounts expense shown on the income statement will be ______.

$700

True or false: An advantage of accepting credit cards is that it eliminates the uncollectible accounts expense that merchants would otherwise incur.

True

True or false: Interest is frequently reported in two different categories within the same set of financial statements.

True

True or false: Recognizing uncollectible accounts expense increases the accuracy of the financial statements.

True

True or false: The collection of a reinstated account is recorded like any other collection of an account receivable.

True

When a company allows a customer to "buy now and pay later," the company's right to collect cash in the future is called a(n) _____ _____.

account receivable

On a balance sheet, companies normally report interest and notes receivable right after ______.

accounts receivable

When using the allowance method, writing off an uncollectible accounts receivables affects accounts on the ______.

balance sheet only

GAAP requires disclosure of ______ the net realizable value of receivables and/or the amount of the allowance account.

both

Interest is normally shown as a(n) ______ item on the income statement and ______ item on the statement of cash flows.

nonoperating, operating

A company experienced an accounting event that caused the net realizable value of receivables to decrease. This event could have happened when the company ______.

recognized uncollectible accounts expense collected an account receivable

A company experienced an event that caused total assets and net income to increase, but had no effect on cash flow. This could have been caused by ______.

recognizing accrued interest

At the end of year 1, Barton Enterprises had accounts receivable of $32,000. Revenue for year 1 was $438,000. Barton Enterprises estimates that 2% of revenue will be uncollectible. Using the percent of revenue method, uncollectible accounts expense on the Year 1 income statement will be ______.

$8,760

Able Company loaned $10,000 to Jill Company on June 1, Year 1 for a one year term at 9% interest. On December 31, Year 1 Alpha Company's financial statements will report accrued interest of $_____.

525

When a notes receivable is outstanding over two or more years, timing differences between interest revenue and cash flow will occur when a company is using _____ accounting.

accrual

The amount of interest due each day is called _____ interest.

accrued

To distinguish the actual balance in accounts receivable from the net realizable value, accounts use a(n) _____ _____ account called Allowance for Doubtful Accounts.

contra asset

Uncollectible accounts expense and recordkeeping costs are two potentially significant costs of extending _____ to customers.

credit

Uncollectible accounts expense and recordkeeping costs are two potentially significant costs of extending to customers.

credit

The advantages of third-party credit card sales for the merchant include ______.

no risk of slow collection or default no expense of credit approval and record maintenance an increase in sales from existing credit cardholders

Under generally accepted accounting principles, the direct write-off method is ______.

only allowed if uncollectible accounts are not material

Another term for the average days to collect receivables plus the average days to sell inventory is ______.

operating cycle

A note specifies ______.

other terms interest rate maturity date

A legally documented credit agreement is called a(n) ______.

promissory note

Estimating uncollectible accounts expense improves the usefulness of financial statements by ______.

providing a clearer picture of managerial performance better matching expense with the revenue it helped produce reporting the amount the company actually expects to collect

The method focuses on estimating the most accurate balance for the Allowance for Doubtful Accounts account that appears on the year-end balance sheet is called the percent of _____ method.

receivables