GR 6

To calculate the effective rate of interest on a noninterest-bearing note, the amount of interest is divided by the ______.

sales price

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

Long-term notes receivable are accounted for the same way as short-term notes receivable, but the time value of money has a larger effect.

true

True or false: The CECL model broadens information that creditors should consider when estimating credit losses.

true

79) The following aging information pertains to Jacobsen Co.'s accounts receivable at December 31, 2018: accounts receivable - % estimated uncollectible: $200,000 - 0.5% $100,000 - 1% $50,000 - 2% $40,000 - 6% Using the aging method, determine the ending balance in the allowance for uncollectible accounts.

200,000 x 0.005 = 1,000 100,000 x 0.01 = 1,000 50,000 x 0.02 = 1,000 40,000 x 0.06 = 2,400 Total = 5,400

Lee accepts a $100,000, 90-day noninterest-bearing note receivable from a customer. The discount rate is 12%. The amount of proceeds of the note used to record the sales revenue

97,000 $100,000 x 12% x 3/12 = 3,000 (discount amount) 100,000 - 3,000 = 97,000

what gives rise to a note receivable

A formal, written extension of the credit period to trade customers. Loaning money to stockholders. Loaning money to an affiliated company.

The following information is taken from Connor Corp.'s accounting records: Account - Beginning Balance - Ending Balance Accounts Receivable - $100,000 - $140,000 Allowance for Uncollectibles - $15,000 - $18,000 During the year, Connor wrote off $17,000 of accounts receivable that were uncollectible. What is recorded as the adjustment entry for the bad debt expense at the end of the period?

Bad Debt Expense 20,000 Allowance for Uncollectibles 20,000 Explanation: 15,000 - 18,000 - 17,000 = (20,000) *credit allowance for uncollectibles 20,000* Adjustment Entry: Allowance for Uncollectibles = (beginning balance for uncollectibles) - (end balance for uncollectibles) - (write-offs)

How does the CECL model differ from current GAAP?

Bad debt estimates will be based on predictions about the future. The "probable" threshold for identifying impaired receivables is removed.

formula for calculating interest multiplies what ?

Face amount of the note Fraction of the annual period Annual interest rate

Garcia sells goods to a customer for $100,000 on a noninterest-bearing, 180-day note receivable. The discount rate is 12%. The effective interest rate for this note is (use 360 days for the year)

The interest is $100,000 x 12% x 180/360 days = $6,000. $6,000/$94,000 proceeds = 6.383% x 2 = 12.77% annual interest (rounded).

Accounts receivable are initially recorded at the exchange price agreed upon by the buyer and seller and subsequently reduced by which of the following?

allowance for uncollectible accounts allowance for sales returns

The balance sheet approach to measuring bad debt expense focuses on

appropriate carrying value of accounts receivable.

For most credit sales, revenue and the related expenses should be reported

at the point of delivery

The balance sheet approach estimates _______ expense by determining the appropriate carrying value of accounts receivable.

bad debt

Using a percentage of each period's accounts receivable to estimate bad debt expense is _________ approach to measuring bad debts

balance sheet approach

The discount on notes receivable account is classified as

contra account to notes receivables account

On January 1, Klay Corp. receives a $100,000, 120-day, noninterest-bearing note receivable from a customer in exchange for the sale of goods. The note has a 6% discount rate. On January 1, when Klay receives the note from the customer, what journal entry will Klay will record?

credit to discount on notes receivable for $2,000. credit to sales revenue for $98,000. debit to notes receivable for $100,000.

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On December 31, when Song records interest for the year, Song will record (Select all that apply.)

credit to interest revenue $9,566 debit to discount on note receivable $9,566

On January 1, Song Corp. receives a $100,000, two-year, note receivable from a customer in exchange for payment of goods. The note has a 12% effective interest rate. On January 1, when Song receives the note from the customer, Song will record (Select all that apply.)

credit to sales revenue $79,719 credit to discount on note receivable $20,281 debit to notes receivable $100,000

The income statement approach for estimating bad debts focuses on

current years credit sales

Joyce determines that a customer account of $20,000 should be written off as uncollectible. The journal entry to write off the account using the allowance method will include which of the following entries?

debit to allowance for uncollectible accounts credit to accounts receivable

Using a percentage of each period's net credit sales to estimate bad debt expense is _________ approach to measuring bad debts

income statement approach

Companies finance with their receivables to (Select all that apply.)

increase cash flow. receive cash before customers would pay amounts due. shorten the operating cycle.

noninterest bearing loan

interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

An aging schedule classifies accounts receivable based on

length of time outstanding

Similar to accounts receivable, a company must estimate credit losses on its notes receivable and use an allowance account to reduce the carrying value to

net realizable value

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable