Accounting 2001 Final Chapter 8
Butte Co. loaned $25,000 to Beavis Co. on June 1, at 12% interest for 3 months. What adjusting entry will Butte Co. have to make on June 30 before preparing the financial statements on June 30? Interest Receivable 250 Interest Revenue 250 Interest Receivable 750 Interest Revenue 750 Interest Receivable 1,000 Interest Revenue 1,000 Interest Receivable 3,000 Interest Revenue 3,000
a
During 2017, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2017, $30,000 of uncollectible accounts receivable 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 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017? $32,000 $30,000 $20,000 $28,000
a
How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1? $233 $33 $300 $400
a
Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method? Allowance for Doubtful Accounts 100 Accounts Receivable 100 Allowance for Doubtful Accounts 100 Bad Debts Expense 100 Bad Debts Expense 100 Accounts Receivable 100 Accounts Receivable 100 Bad Debts Expense 100
a
On the date a 90-day note is honored, how much cash will the payee receive? Face value Maturity value less the face value Face value plus 90 days of interest Maturity value plus 90 days of interest
a
RyTronics 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? Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 Bad Debts Expense 4,000 Allowance for Doubtful Accounts 4,000 Allowance for Doubtful Accounts 4,000 Bad Debt Expense 4,000 Bad Debts Expense 3,200 Accounts Receivable 3,200
a
Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. What is the entry to be made by Schleis Co. when the note is collected, assuming no interest has previously been accrued? Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 Cash 10,000 Notes Receivable 10,000 Cash 10,300 Notes Receivable 10,300 Accounts Receivable 10,300 Notes Receivable 10,000 Interest Revenue 300
a
What is the maturity value of a $25,000, 9%, 4-month note receivable issued on December 1 if the company has a fiscal year end on December 31? $25,000 $25,750 $27,250 $25,250
a
What type of receivable is evidenced by a formal instrument and normally requires the payment of interest? A note receivable A trade receivable An account receivable Past-due accounts receivables
a
Which of the following is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company? A concentration of credit risk Credit risk Concentration risk Payment risk
a
Which statement is true about reporting receivables on the balance sheet? Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet. Bad Debts Expense is subtracted from Accounts Receivable and is then shown as a deduction from Accounts Receivable on the balance sheet. Bad Debts Expense and Allowance for Doubtful Accounts are shown as a deduction from Accounts Receivable on the balance sheet. Bad Debts Expense is is shown as a deduction from Accounts Receivable on the balance sheet.
a
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data: Accounts receivable $800,000 Allowance for doubtful accounts balance before adjustment (credit) 12,000 Amounts expected to become uncollectible 65,000 How much is the cash (net) realizable value of the accounts receivable at December 31, after adjustment? $788,000 $735,000 $747,000 $723,000
b
If a company is concerned about lending money to a risky customer, which one of the following would it not want to do? Contact references provided by the customer, such as banks and other suppliers. Provide the customer a lengthy payment period to increase the chance of paying. Require the customer to provide a letter of credit or a bank guarantee. Require the customer to pay cash in advance.
b
Notes receivable are reported in the current assets section of the balance sheet at market value. cash (net) realizable value. the selling price at which the inventory was sold to the customers. total principal plus interest for the term of the loan.
b
Ryan Leaf Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end and 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 credit balance of $200 before adjustment? Bad Debts Expense 1,800 Allowance for Doubtful Accounts 1,800 Bad Debts Expense 1,600 Allowance for Doubtful Accounts 1,600 Bad Debts Expense 1,600 Accounts Receivable 1,600 Allowance for Doubtful Accounts 1,800 Bad Debt Expense 1,800
b
What is often the most critical part of managing receivables? Determining which method to use to account for bad debts Determining who gets credit and who doesn't Monitoring the receivables Establishing a payment period
b
When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain? Two debits and one credit Two credits and one debit One debit and one credit None of the answer choices are correct
b
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? Loss on Accounts Receivable account is debited. Allowance for Doubtful Accounts is debited. Bad Debts Expense account is debited. Accounts Receivable account is debited.
b
Which one of the following is the correct presentation of Accounts Receivable and its contra account on the balance sheet? Accounts Receivable $642,000 Plus: Allowance for Doubtful Accounts 2,000 $644,000 Accounts Receivable $642,000 Less: Allowance for Doubtful Accounts (2,000) $640,000 Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) $625,000 Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) Less: Allowance for Doubtful Accounts (2,000) $623,000
b
Which one of these statements about promissory notes is incorrect? The party making the promise to pay is called the maker. A promissory note is not a negotiable instrument. The party to whom payment is to be made is called the payee. A promissory note is more liquid than an account receivable.
b
A company holds a 120-day, 10%, $21,000 note which was not paid in full on the maturity date. Which of the following will the journal entry on the maturity date include? Debit to Notes Receivable for $21,000 Debit to Cash for $21,700 Debit to Accounts Receivable for $21,700 Credit to Notes Receivable for $21,700
c
At what amount is a short-term notes receivable recorded on the issue date? Maturity value Present value Face value Fair market value
c
If a company uses the allowance method for uncollectible accounts, then the entry to record $800 of estimated uncollectibles is Allowance for Doubtful Accounts 800 Accounts Receivable 800 Accounts Receivable 800 Allowance for Doubtful Accounts 800 Bad Debts Expense 800 Allowance for Doubtful Accounts 800 Bad Debts Expense 800 Accounts Receivable 800
c
On June 15, Kersee Company sold merchandise on account to Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received on June 24? $700. $680. $686. None of the answer choices are correct.
c
When an uncollectible account is recovered after it has been written off, which of the following accounts will be credited in the process? Allowance for Doubtful Accounts and Cash Cash and Account Receivable Accounts Receivable and Allowance for Doubtful Accounts Allowance for Doubtful Accounts and Bad Debts Expense
c
When is a receivable recorded by a service organization? When the related expenses are incurred When the customer pays When service is provided on account When the bill is sent to the customer
c
Which of the following is the correct sequence to report receivables on the balance sheet? A 6-month note receivable, accounts receivable, other receivables Accounts receivable, other receivables, a 6-month note receivable Accounts receivable, a 6-month note receivable, other receivables A 6-month note receivable, other receivables, accounts receivable
c
Which of the following is the debit effect of the journal entry to record the dishonor of a note receivable? Allowance for Doubtful Accounts Loss on Notes Receivable Accounts Receivable Bad Debts Expense
c
Which one of the following is not one of the five basic issues in accounting for notes receivable? Disposing of notes receivable Recognizing notes receivable Realizing notes receivable Valuing notes receivable
c
Which one of the following is not one of the principles of managing accounts receivable? Accelerating cash receipts from receivables when necessary Monitoring collections Determining from which vendor credit should be requested Establishing a payment period
c
A 90-day promissory note is issued on September 15. What is the note's maturity date? December 13 December 15 December 16 December 14
d
At what value are accounts receivable reported on the balance sheet? Present value Maturity value Fair market value Cash (net) realizable value
d
Danta Company has a March 31 fiscal year end. What is the maturity value of a $25,000, 12%, 3-month note receivable dated March 1? $25,000 $25,250 $28,000 $25,750
d
Michael Co. accepts a $4,000, 3-month, 12% promissory note in settlement of an account with Tani Co. The entry to record this transaction is Notes Receivable 4,120 Accounts Receivable 4,120 Notes Receivable 4,120 Accounts Receivable 4,120 Notes Receivable 4,000 Sales 4,000 Notes Receivable 4,000 Accounts Receivable 4,000
d
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? $17,000 $7,000 $300,000 $12,000
d
On May 2, Wainwright Company receives a $3,000, 4-month, 10% note from Fulton Company as a settlement of its accounts receivable. What entry will Wainwright Company make when it receives the note on May 2? Notes Receivable 3,000 Interest Receivable 100 Accounts Receivable 3,000 Interest Revenue 100 Notes Receivable 3,100 Sales Revenue 3,100 Notes Receivable 3,100 Accounts Receivable 3,100 Notes Receivable 3,000 Accounts Receivable 3,000
d
What type of receivables result from sales transactions? Other receivables Long-term receivables Non-trade receivables Trade receivables
d
Which of the following should be classified as an "other" receivable? Accounts receivable Notes receivable Trade receivables Interest receivable
d
Which one of the following statements is true? Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period. Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period. Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.
d
Allowance for Doubtful Accounts is closed at the end of the fiscal year. True False
f
Receivables are reported on the balance sheet at the cash amount owed by customers. True False
f
Short-term notes receivable are reported at their cash (net) realizable value. True False
t
The direct write-off method violates the expense recognition principle. True False
t
Under the allowance method, the write off of an account receivable leaves the net realizable value of the receivables unchanged. True False
t
