CH 7 - Book

Comfy Shoes began operations on January 1. By December 31, Comfy Shoes had sales of $800,000. Eighty percent of Comfy Shoes' sales are on account. $500,000 was collected throughout the year and bad debts were estimated at $5,000. At the end of the period, net accounts receivable were:

$135,000 ($800,000 x 80%) - $500,000 - $5,000 = $135,000

Alma Company's average collection period is 45 days and its net sales are $2,430,000. What are Alma Company's average receivables for the period?

$300,000

The following account balances were extracted from the accounting records of A and D Corporation: Accounts Receivable $40,000 Allowance for Uncollectible Accounts $5,000 Uncollectible Accounts Expense $12,000 What is the net realizable value of the accounts receivable?

$35,000

A year-end review of accounts receivable and estimated uncollectible percentages revealed the following: 1-30 days $24,000 2% 31-60 days $800 10% 61-90 days $500 20% Amounts over 90 days past due are written off. The normal balance in Allowance for Uncollectible Accounts was $300. The uncollectible accounts expense for the year was:

$360

An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $5,800. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $1,100. The amount of the adjusting entry should be:

$4,700

An aging-of-accounts-receivable method indicates that amount of uncollectible accounts is $5,800.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,100. The amount of the adjusting entry should be:

$6,900

The following item appeared on a balance sheet: Receivables, less allowance of $750 .....$8,500 Uncollectible accounts expense for the period was $1,250. The balance in Accounts Receivable was:

$9,250

Hamburg Inc. sold $15,000 of its designer tables to Santos Furniture and Design Studios on account. Hamburg estimates that $1,500 of these sales will either be returned or an allowance will be granted. Prepare the entries when (a) Hamburg makes the sale (use the gross method), and (b) Hamburg grants an allowance of $800 when some of the tables do not meet exact specifications but still could be sold by Santos

(a) gross Accounts Receivable 15,000 Sales Revenue 15,000 (b) Sales Returns and Allowances 800 Accounts Receivable 800

If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)?

18%

The required balance in Wheeler's allowance for doubtful accounts is $36,750, based on an aging of its accounts receivable. The allowance for doubtful accounts currently has a debit balance of $4,200. Wheeler's bad debt expense for the period is

40,950

In a transfer of receivables accounted for as a secured borrowing

A finance charge is recorded.

If, as anticipated, the FASB eliminates the cash equivalent classification, a treasury bill will be classified as:

A short-term investment.

When using the direct write-off method, the journal entry to write off an uncollectible account includes a credit to:

Accounts Receivable

Recent financial statements of Aero Ship Builders, Inc. report net sales of $682,000,000. Accounts receivable are $68,000,000 at the beginning of the year and $81,000,000 at the end of the year. Compute Aero's accounts receivable turnover. Compute Aero's average collection period for accounts receivable in days

Accounts receivable turnover: Net sales/average receivables 682/([68+81]/2) = 9.15 Collection period: 365/turnover 365/9.15 = 39.89 days

The IFRS approach to derecognizing a receivable focuses on which of the following?

All of these choices are correct

When using the allowance method of accounting for bad debt, the entry to record the write-off of a specific account of $4,000 that has been determined to be uncollectible would be:

Allowance for Bad Debts 4,000 Accounts Receivable 4,000

First Food Distributors, Inc. had net sales in 2017 of $2,800,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable $320,000 debit, and Allowance for Doubtful Accounts $2,000 debit. If First Food estimates that 6% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.

Bad Debt Expense 21,200 Allowance for Doubtful Accounts 21,200

Bentley Corporation has recently acquired notes receivable that have a fair value of $405,000 and a carrying amount of $310,000. Bentley decides on December 31, 2017, to use the fair value option for the first valuation of these receivables. Which of the following is incorrect?

Bentley must value all similar receivables at fair value in all subsequent periods in which it holds this type of receivable.

Short-term paper with maturities of less than 3 months should be classified as

Cash equivalents

Pro Training has the following assets at December 31, 2017. Cash in bank—savings account Certificates of deposit (270-day) Cash on hand Postdated checks Cash refund due from State Taxing Authority Checking account balance What amount should be reported as cash?

Cash in bank—savings account Cash on hand Checking account balance _______________________________________ Cash to be reported

Which of the following methods of determining annual bad debt expense violates the expense recognition concept?

Direct write-off.

Finance companies that buy receivables from businesses are called:

Factors

The interest rate that equates the cash paid with the amount received in the future on a zero-interest-bearing note is the:

Implicit rate

Which of the following help reduce the size of a company's float?

Lockbox accounts

All of the following are properly classified as temporary investments except:

Money orders

Under IFRS, bank overdrafts are

Netted against cash and a net cash amount reported.

The accounts receivable turnover ratio measures the

Number of times the average balance of accounts receivable is collected during the period

On March 1, 2017, Parker Pasta Company assigns $1,400,000 of its accounts receivable to First Bank as collateral for a $1,000,000 note. First Bank assesses a finance charge of 1 percent of the accounts receivable and interest on the note of 12 percent. Which of the following is correct regarding this transaction?

On March 1, 2014, First Bank will credit interest revenue for $14,000

Non-trade receivables include all of the following except:

Oral promises of the purchaser to pay for goods and services sold.

Which of the following statements is false?

Receivables include equity securities purchased by the company.

Cash consists of all of the following except:

Short-term paper with a maturity of 6 months.

Which of the following statements is true?

The fair value option allows, but does not require, that some types of financial instruments be recorded at fair value.

On November 1, 2017, Open Fields, Inc. accept a $400,000 note receivable from a customer.Open Fields elected to use the fair value option for this financial asset.On December 31, 2017, the fair value of the note receivable is $375,000.Prepare the December 31, 2017 journal entry for the fair value option.

Unrealized Holding Gain or Loss — Income 25,000 Notes Receivable 25,000

Under the allowance method, the entry to write off a $1,425 uncollectible account includes:

a debit to Allowance for Uncollectible Accounts for $1,425

Under the direct write-off method, the entry to write off an uncollectible account of $1,250 includes:

a debit to Uncollectible-Account Expense for $1,250

Net accounts receivable is calculated as:

accounts receivable less allowance for uncollectible accounts

Under IFRS, receivables are to be reported on the balance sheet at

amortized cost adjusted for estimated loss provisions

The net realizable value of accounts receivable is the:

amount the company expects to collect from customers

Under the allowance method, the entry to record the bad debts estimate includes a:

debit to Uncollectible Accounts Expense and credit to Allowance for Uncollectible Accounts

ESL Corporation uses the allowance method of accounting for bad debts. In April, ESL's management determined that a major customer was bankrupt and wrote off the customer's $8,000 account. This write off

does not affect the net accounts receivable or the net income.

Under the direct write-off method, the entry to record the estimated bad debts is a:

does not require a journal entry

Under the allowance method, the entry to reinstate an account previously written off:

has no effect on net income or total assets

Under the allowance method for estimating uncollectible accounts, the entry to write off an account: (effect)

has no effect on net realizable value

The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:

matching principle

. Under the allowance method for estimating uncollectible accounts, the entry to record the estimated bad debts:

reduces net income

Under IFRS, cash and cash equivalents are reported

similar to GAAP, except for the reporting of bank overdrafts.

Under IFRS:

the entry to record estimated uncollected accounts is the same as GAAP