Chapter 7

Transferred to accounts receivable

A dishonored note should be:

Not Right

A separate allowance account is established under the direct write-off method.

nontrade receivables

Advances to employees, and deposits with utilities are examples of:

Debit Uncollectible Accounts Expense for 21,000, and Credit Allowance for Uncollectible Accounts for 21,000

Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be:

True

Costs associated with the extension of credit include credit checks, collection efforts, and uncollectible accounts.

Allowance

Does the allowance method or the direct write-off method achieve a better matching of revenues and expenses?

Debit Allowance for Uncollectible Accounts for 4,000, and Credit Accounts Receivable for 4,000

Flynn Company uses an allowance method for recording uncollectibles. Flynn determined that $4,000 due from Mitchell will not be collected. The entry Flynn should record to write off the Mitchell account is:

aging

Individual accounts receivable are categorized according to the length of time outstanding under a process known as _____________ of accounts receivable.

(principal x rate x time)

Interest on a loan may be computed by which of the following formulas?

Debit Accounts Receivable for 1,000, and Credit Allowance for Uncollectible Accounts for 1,000

John Company uses an allowance method for recording uncollectible receivables. John was notified by Paul that payment on a $1,000 receivable would be forthcoming. John had previously written off the receivable from Paul. The proper journal entry for John to record to reinstate the receivable into the accounts is:

$46,500

Lindy Company uses an allowance method to account for bad debts. Lindy estimates that 5% of the outstanding accounts receivable will be uncollectible. At the end of the year, Lindy has outstanding accounts receivable of $750,000, and a debit balance in the Allowance for Uncollectible Accounts of $9,000. Lindy should record uncollectible accounts expense of:

Overstate Understate

Lundstrom Company began making sales on credit during 20X1. The company used the direct write-off method for uncollectible accounts. A material amount of uncollectible accounts resulting from sales made during 20X1 were written off during 20X2. What was the effect of this write-off on net income for 20X1 and 20X2, respectively?

$128,000

Malcom's financial statements revealed uncollectible accounts expense of $8,000, accounts receivable of $140,000, and allowance for uncollectible accounts of $12,000. The net realizable value of Malcom's accounts receivable is:

Balance Sheet

Which approach to estimating uncollectible accounts utilizes computation techniques like aging of accounts receivable or percentage of outstanding accounts receivable (in contrast to percentage of sales)?

False

Notes receivable would initially be recorded at their maturity value.

Debit Uncollectible Accounts Expense for 300, and Credit Accounts Receivable for 300

Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be:

Maker

The _____________ promises to pay a stipulated amount of a note to the payee.

Matching

The allowance method places emphasis on the _____________ principle.

Interest ; Rate

_____________ is the charge imposed on the borrower of funds, and can be computed as Principal  X _____________ X Time.

False

The income statement approaches to estimating uncollectible accounts result in computations that reveal the balance that should be in the Allowance for Uncollectible Accounts.

True

The majority of receivables are trade receivables.

Principal ; Interest

The maturity value of a note is the amount due on the maturity date and includes _____________ plus _____________ .

Net Credit Sales

The numerator used in calculating the accounts receivable turnover ratio is:

Arises from the sale of the company's products or services.

Trade accounts receivable:

trade

_____________ receivables arise from the sale of goods and services to customers on account.

Direct Write-off

Under the _____________ _____________-_____________ method, uncollectible accounts are recognized when the actual loss is confirmed.

True

Under the allowance method, reinstating an account previously written off will cause an increase in the Allowance for Uncollectible Accounts.

No

Under the allowance method, the write-off of an uncollectible account will result in a decrease in either income or total assets.

$400

Vivian Howell is the payee of $10,000, 180-day, 8% note. At maturity, the maker failed to pay. How much interest income should Vivian recognize on the dishonored note?

At the time of sale

When is a sale normally recognized if a customer uses a nonbank credit card?