ACG 2021 CH 8

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? A) $686 B) $700 C) $688 D) $670 E) $680

A) $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.

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? A) Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000 B) Allowance for Doubtful Accounts 2,000 Bad Debt Expense 2,000 C) Bad Debts Expense 1,600 Allowance for Doubtful Accounts 1,600 D) Allowance for Doubtful Accounts 1,800 Bad Debt Expense 1,800 E) Bad Debts Expense 1,800 Allowance for Doubtful Accounts 1,800

A) Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000

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? A) Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 B) Allowance for Doubtful Accounts 3,200 Bad Debt Expense 3,200 C) Allowance for Doubtful Accounts 4,000 Bad Debt Expense 4,000 D) Bad Debts Expense 3,200 Accounts Receivable 3,200 E) Bad Debts Expense 4,000 Allowance for Doubtful Accounts 4,000

A) Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200

A 90-day promissory note is issued on September 18. What is the note's maturity date? A) December 17 B) December 15 C) December 18 D) December 19 E) December 16

A) December 17

Factoring is the process of A) selling accounts receivable at a discount to another party. B) giving customers additional time to pay. C) determining the percentage of accounts receivable expected to be collected. D) determining the allowance for doubtful accounts value. E) determining the average collection period.

A) selling accounts receivable at a discount to another party.

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? A) $30,000 B) $32,000 C) $20,000 D) $28,000 E) No credit adjustment needed

B) $32,000

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? A) Debit balance of $12,000 B) Credit balance of $12,000 C) Credit balance of $5,000 D) Debit balance of $7,000 E) Credit balance of $7,000

B) Credit balance of $12,000

Which one of the following is not one of the five basic issues in accounting for notes receivable? A) Valuing notes receivable B) Filing notes receivable C) Recognizing notes receivable D) Computing the present value of notes receivable E) Disposing of notes receivable

B) Filing notes receivable The five basic issues in accounting for notes receivable are 1) determining the maturity date, 2) computing interest, 3) recognizing notes receivable, 4) valuing notes receivable, and 5) disposing of notes receivable.

Short-term notes receivable are reported in the current assets section of the balance sheet at A) the selling price at which the inventory was sold to the customers. B) cash realizable value. C) market value. D) maturity value. E) face value plus interest for the term of the loan.

B) cash realizable value.

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? A) $60 B) $400 C) $480 D) $240 E) $720

C) $480

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, $800,000; Allowance for doubtful accounts balance before adjustment (credit balance), $12,000; Amounts expected to become uncollectible, $65,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries? A) $788,000 B) $747,000 C) $735,000 D) $800,000 E) $723,000

C) $735,000 In this case, accounts receivable is $800,000 and the ending balance in Allowance for Doubtful Accounts will be $65,000 after the year-end adjusting entry has been recorded. This will result in cash realizable value (i.e., net realizable value) of $800,000 less $65,000, or $735,000.

Which one of the following statements is true? A) None of these B) Bad Debts Expense and Allowance for Doubtful Accounts are both permanent accounts and neither are closed at the end of the fiscal period. C) 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. D) Bad Debts Expense is a permanent account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a temporary account and is closed at the end of the fiscal period. E) Bad Debts Expense and Allowance for Doubtful Accounts are both temporary accounts and are closed at the end of the fiscal period.

C) 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.

Which one of the following is not one of the principles of managing accounts receivable? A) Monitoring collections B) Accelerating cash receipts from receivables when necessary C) Determining from which vendor credit should be requested D) Evaluating the liquidity of receivables E) Establishing a payment period

C) Determining from which vendor credit should be requested

Michael Co. accepts a $4,000, 3-month, 12% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as A) a debit to Accounts Receivable for $4,000 and a credit Notes Receivable for $4,000. B) a debit to Notes Receivable for $4,120 and a credit to Accounts Receivable for $4,120. C) a debit to Notes Receivable for $4,000 and a credit Accounts Receivable for $4,000. D) a debit to Interest Receivable for $120 and a credit Interest Revenue for $120. E) a debit to Accounts Receivable for $4,120 and a credit Notes Receivable for $4,120.

C) a debit to Notes Receivable for $4,000 and a credit Accounts Receivable for $4,000.

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? A) $9,000 B) $16,300 C) $11,000 D) $12,300 E) $14,300

D) $12,300 Trade receivables = $9,000 + 3,300 = $12,300

Net credit sales are $750,000, average inventory totals $50,000, average net receivables total $60,000, and the allowance for doubtful accounts totals $5,000. How much is the average collection period (also known as the days in receivable ratio)? A) 26.766 days B) 20.277 days C) 24.333 days D) 29.2 days E) 4.8 days

D) 29.2 days

When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first? A) Debit Cash and credit Allowance for Doubtful Accounts B) Debit Account Receivable and credit Bad Debt Expense C) Debit Allowance for Doubtful Accounts and credit Accounts Receivable D) Debit Accounts Receivable and credit Allowance for Doubtful Accounts E) Debit Cash and credit Accounts Receivable

D) Debit Accounts Receivable and credit Allowance for Doubtful Accounts

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? A) Credit to Notes Receivable for $21,700 B) Debit to Notes Receivable for $21,000 C) Credit to Interest Revenue for $21,700 D) Debit to Cash for $21,700 E) Debit to Accounts Receivable for $21,000

D) Debit to Cash for $21,700

Which of these statements about national credit card (e.g., Visa) sales is correct? A) The retailer considers sales involving the use of a national credit card to be sales on account. B) The retailer waits at least 24 hours to receive payment from the customer who used the credit card at a retailer. C) A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer. D) The issuer must assess the customer's credit worthiness when the customer uses a national credit card to make a purchase.

D) The issuer must assess the customer's credit worthiness when the customer uses a national credit card to make a purchase.

If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes A) a debit to Bad Debts Expense for $800 and a credit to Allowance for Doubtful Accounts for $800. B) a debit to Accounts Receivable for $800 and a credit to Bad Debts Expense for $800. C) a debit to Accounts Receivable for $800 and a credit to Allowance for Doubtful Accounts for $800. D) a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800. E) a debit to Bad Debts Expense for $800 and a credit to Accounts Receivable for $800.

D) a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800.

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? A) Debit Cash for $30,000 and credit Interest Revenue for $30,000 B) Debit Interest Expense for $250 and credit Interest Payable for $250 C) Debit Interest Expense for $750 and credit Interest Payable for $750 D) Debit Interest Receivable for $250 and credit Interest Revenue for $250 E) Debit Interest Receivable for $500 and credit Interest Revenue for $500

E) Debit Interest Receivable for $500 and credit Interest Revenue for $500

Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The net accounts receivable at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover? A) 6.0 B) 5.3 C) 4.0 D) 8.0 E) 6.4

E) 6.4

Which of the following is false with regards to notes receivable? A) If the lender has no hope of collecting a note receivable, it should write-off the note. B) A note is honored when its maker pays in full at its maturity date. C) A note is defaulted or dishonored when it is not paid in full at maturity. D) An interest-bearing note's amount due at maturity is its face value plus interest for the length of time specified on the note. E) When a note is dishonored, the lender no longer has a claim against the maker of the note.

E) When a note is dishonored, the lender no longer has a claim against the maker of the note.

Under the allowance method, writing off an uncollectible account A) affects no balance sheet accounts or income statement accounts. B) affects one balance sheet account and one income statement account. C) violates Generally Accepted Accounting Principles. D) affects two income statement accounts. E) affects two balance sheet accounts.

E) affects two balance sheet accounts. Under the allowance method, writing off an uncollectible account the company reduces its accounts receivable and it reduces its Allowance for Doubtful Accounts. Both of these are asset accounts, but one is a contra asset. The net effect is that total assets do not change.

Writing-off a specific customer's accounts receivable under the allowance method A) decreases the cash realizable value of accounts receivable. B) does not affect the balance of the Allowance for Doubtful Accounts. C) must occur before the last day of the accounting period. D) increases bad debt expense for the accounting period. E) does not affect the balance of Cash.

E) does not affect the balance of Cash. Under the allowance method for uncollectible accounts, a company estimates its bad debt expense at the end of each accounting period (e.g., year) and increases its allowance for doubtful accounts. When specific customers' accounts are identified as uncollectible, the company reduces its allowance for uncollectible accounts and reduces its accounts receivable.