Financial Accounting Chapter 5A

On January 1, Year 2, Grande Company had a $65,400 balance in the Accounts Receivable account and a $1,700 balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $162,000 of service on account. The company collected $178,900 cash from accounts receivable. Uncollectible accounts are estimated to be 1% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is:

$1,620. Explanation: $162,000 sales on account x 1% = $1,620 uncollectible accounts expense.

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is:

$2,080. Explanation: $104,000 sales on account x 2% = $2,080 uncollectible accounts expense.

On January 1, Year 2, the Accounts Receivable balance was $24,200 and the balance in the Allowance for Doubtful Accounts was $2,500. On January 15, Year 2, an $710 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

$21,700. Explanation: $24,200 - $710 = $23,490 accounts receivable balance after the write-off. $2,500 - $710 = $1,790 allowance balance after the write-off. $23,490 - $1,790 = $21,700 net realizable value after the write-off.

The Miller Company earned $103,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $72,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of Year 2 was:

$27,910. Explanation: $0 beginning balance + $103,000 revenue on account - $72,000 collections = $31,000 ending accounts receivable balance. $0 beginning balance + $3,090 uncollectible accounts expense - $0 write-offs = $3,090 ending allowance for doubtful accounts balance. $31,000 - $3,090 = $27,910 net realizable value.

On January 1, Year 2, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

$34,200. Explanation: $37,000 - $800 = $36,200 accounts receivable balance after the write-off. $2,800 - $800 = $2,000 allowance balance after the write-off. $36,200 - $2,000 = $34,200 net realizable value after the write-off.

Rosewood Company made a loan of $7,600 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:

$342 and $114. Explanation: $7,600 x 6% x 9/12 months = $342 interest revenue in April - December, Year 1. $7,600 x 6% x 3/12 months = $114 interest revenue in January - March, Year 2.

Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $43,430 and $3,380, respectively. During the year, the company wrote off $2,590 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule: Number of days past due; Receivables amount; % Likely to be uncollectible Current; $68,000; 1% 0-30; $26,300; 5% 31-60; $6,560; 10% 61-90; $3,320; 25% Over 90; $3,000; 50% Total; $107,180 What will Domino record as Uncollectible Accounts Expense for Year 2?

$4,191. Explanation: ($68,000 x 1%) + ($26,300 x 5%) + ($6,560 x 10%) + ($3,320 x 25%) + ($3,000 x 50%) = $4,981 estimated ending allowance balance. $3,380 beginning allowance balance + uncollectible accounts expense - $2,590 write-offs = $4,981 ending allowance balance. Uncollectible accounts expense = $4,981 - $3,380 + $2,590 = $4,191.

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $62,600 and $1,100, respectively. During the year Kincaid reported $148,000 of credit sales. Kincaid wrote off $1,150 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $154,500. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:

$53,520. Explanation: $62,600 beginning balance + $148,000 credit sales - $154,500 collections - $1,150 write-offs = $54,950 ending accounts receivable balance. $1,100 beginning allowance balance + $1,480 uncollectible account expense - $1,150 write-offs = $1,430 ending allowance balance. $54,950 accounts receivable - $1,430 allowance = $53,520 net realizable value.

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is:

$97,000. Explanation: $97,000 cash collected from accounts receivable is a cash inflow for operating activities.

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense using the allowance method?

Assets = - Liab. = NA Equity = - Rev. = NA Exp. = + Net Inc. = - Cash Flow = NA Explanation: Recording uncollectible accounts expense decreases assets (increases allowance for doubtful accounts) and increases expenses, which decreases net income and equity. It does not affect the statement of cash flows.