Accounting chapter 8 wiley questions

Presentation of Accounts Receivable and its contra account on the balance sheet

Accounts Receivable Less: Allowance for Doubtful Accounts

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?

$25,750 -Interest = $25,000 × 9% × 4/12 = $750. -Maturity value = $25,000 + $750 = $25,750

A 90-day promissory note is issued on September 15. What is the note's maturity date?

December 14 You must count the number of days. The date the note is issued is omitted, while the due date is counted.

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?

Includes: -the receipt of cash -a decrease to the note account -recognition of interest earned Dr. Cash Cr. Notes Receivable Cr. Interest Revenue

At what amount is a short-term notes receivable recorded on the issue date?

face value (the principal amount of the note)

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 ($5,000 × 8% × 7/12 = $233)

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?

$25,750 -Interest = $25,000 × 12% × 3/12 = $750. -Maturity value = $25,000 + $750 = $25,750

Prall Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (days)?

*52 days 365/7 = 52 days

Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. How much is the accounts receivables turnover?

*6.4 $800,000/[($100,000 + $150,000)/2] = 6.4.

Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period?

*68.5 days

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.

-$686.

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 -$747,000 -$723,000 -$735,000

-$788,000

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest? -A note receivable -A trade receivable -Past-due accounts receivables -An account receivable

-A note receivable

Which of the following is the debit effect of the journal entry to record the dishonor of a note receivable? -Accounts Receivable -Allowance for Doubtful Accounts -Bad Debts Expense -Loss on Notes Receivable

-Accounts Receivable Dr. Accounts Receivable Cr. Notes Receivable

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? -Allowance for Doubtful Accounts is debited. -Loss on Accounts Receivable account is debited. -Bad Debts Expense account is debited. -Accounts Receivable account is debited.

-Allowance for Doubtful Accounts is debited. Dr. Allowance for Doubtful Accounts Cr. Accounts Receivable

At what value are accounts receivable reported on the balance sheet? -Cash (net) realizable value -Maturity value -Fair market value -Present value

-Cash (net) realizable value

Which of the following should be classified as an "other" receivable? -Trade receivables -Notes receivable -Interest receivable -Accounts receivable

-Interest receivable

Methods used by companies to accelerate cash receipts

-Selling receivables to a factor -Offering discounts for early payment -Accepting national credit cards for customer purchases

What type of receivables result from sales transactions? -Non-trade receivables -Trade receivables -Long-term receivables -Other receivables

-Trade receivables

When is a receivable recorded by a service organization? -When service is provided on account -When the related expenses are incurred -When the customer pays -When the bill is sent to the customer

-When service is provided on account

22. Notes receivable are reported in the current assets section of the balance sheet at: -the selling price at which the inventory was sold to the customers. -market value. -cash (net) realizable value. -total principal plus interest for the term of the loan.

-cash (net) realizable value.

The five basic issues in accounting for notes receivable

1) determining the maturity date, 2) computing interest, 3) recognizing notes receivable, 4) valuing notes receivable, and 5) disposing of notes receivable.

concentration of credit risk

A threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company

Correct sequence to report receivables on a balance sheet

Accounts receivable, a 6-month note receivable, other receivables

Allowance for Doubtful Accounts on a balance sheet

Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.

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 will be credited and Accounts Receivable will be debited in the first entry. The second entry requires a credit to Accounts Receivable and a debit to Cash. Dr. accounts receivable Cr. Allowance for doubtful accounts Dr. Cash Cr. accounts receivable

What is often the most critical part of managing receivables?

Determining who gets credit and who doesn't

A company holds a 120-day, 10%, $21,000 note which was NOT paid in full on the maturity date. What will the journal entry on the maturity date include?

Dr. Accounts Receivable 21,700 Cr. Notes Receivable 21,000 Cr. Interest Revenue 700 -decrease Notes Receivable for the value of the note -recognize interest revenue for the term of the note -increase the Accounts Receivable account for the total owed by the maker.

question 14: 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?

Dr. Allowance for Doubtful Accounts 100 Cr. Accounts Receivable 100

question 17: If a company uses the allowance method for uncollectible accounts, then the entry to record $800 of estimated uncollectibles is

Dr. Bad Debt expense 800 Cr. Allowance for Doubtful Accounts 800

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?

Dr. Cash 10,300 Cr. Notes Receivable 10,000 Cr. Interest Revenue 300

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?

Dr. Interest Receivable $250 Cr. Interest Revenue $250 ($25,000 × 12% × 1/12 = $250)

On the date a 90-day note is honored, how much cash will the payee receive? -Maturity value less the face value -Maturity value plus 90 days of interest -Face value plus 90 days of interest -Face value

Maturity value= Face value plus 90 days of interest

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

On the date Michael accepts the note, it is recorded at face amount. Interest is accrued only with the passage of time. Dr. Notes Receivable $4000 Cr. Accounts Receivable $4000

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?

On the date Wainwright accepts the note, it is recorded at face amount. Dr. Notes Receivable $3000 Cr. Accounts Receivable $3000

Factoring is the process of

selling accounts receivable at a discount to another party