Accounting Chapter 7 quiz

Rosewood Company made a loan of $9,800 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively?

$441 in Year 1 and $147 in Year 2

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $54,000 and $2,400, respectively. During Year 2, Allegheny wrote off $4,200 of Uncollectible Accounts. Using the percent of receivables method, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $4,000. What amount will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

5,800

How would accountants estimate the amount of a company's uncollectible accounts expense? Consider new circumstances that are anticipated to be experienced in the future. Compute as a percentage of credit sales. Consult with trade association and business associates. All of these answer choices are correct. Correct

All of these answer choices are correct. Correct

Which of the following best describes the percent of receivables method? Income statement approach Direct write-off approach Credit sales approach Balance sheet approach

Balance sheet approach

What does the accounts receivable turnover ratio measure? How quickly accounts receivable turn into cash How quickly the accounts receivable balance increases Average balance of accounts receivables How quickly inventory turns into accounts receivable

How quickly accounts receivable turn into cash

When is it acceptable to use the direct write-off method? If the dollar amount of uncollectible accounts is not material. If most uncollectible accounts do not occur in the period of sale. If most sales are made to other businesses. All of these answer choices are correct.

If the dollar amount of uncollectible accounts is not material.

What is the term used to describe the amount of accounts receivable that is actually expected to be collected? Allowance for doubtful accounts Uncollectible accounts expense The present value of accounts receivable Net realizable value

Net realizable value

A company that uses the direct write-off method must still prepare a year-end adjusting entry to estimate its uncollectible accounts.

false

On June 1, Year 2, Carolina Company collected a $24,000 note receivable that had been issued on June 1, Year 1. The note carried a 6% interest rate. On June 1, Year 2, the company will recognize interest revenue in the amount of $1,440.

false

The net realizable value of accounts receivable decreases when an account receivable is written off.

false

Most companies report receivables on their balance sheets at the net realizable value.

true

Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected.

true