ACG CH 8 REVIEW
The interest on a $4,000, 9%, 90-day note receivable is
$90
A corporation sells its goods on terms of 3/10, n/30. It has a receivables turnover ratio of 6.00. What is its average collection period (also known as the days in receivable ratio)?
60.83
A company sells $200,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should include
a debit to cash for $196,000
On December 14, a company sold $2,000 of merchandise on account to a customer with terms 2/10, n/30. On December 20, the customer returned $800 of merchandise to the company. The company collects full payment from the customer on December 21. What is the amount of cash received by the company on December 21?
$1,176 SOLUTION (2,000-8,000)x 98%= 1176
At the start of the current year, a company's allowance for doubtful accounts had a credit balance of $15,000. During the current year, it had net credit sales of $600,000 and it wrote-off $24,000 of accounts receivable as uncollectible. The company's accounts receivable at the end of the year is $160,000. Past experience indicates that the allowance should be 10% of the balance in receivables. What is the bad debt expense for the year? $40,000 $24,000 $16,000 $25,000 $31,000
$25,000 SOLUTION Allowance for doubtful acc: 10% x 160,000= 16,000 Debit balance prior to adjustments: 24,000- 15,000= 9,000 Bad debt expense: 16,000+9,000= 25,000
Net credit sales for the year are $750,000. The end of year accounts receivable balance is $160,000. The allowance for doubtful accounts is calculated as 5% of the receivables balance. The Allowance for Doubtful Accounts has a credit balance of $5,000 before year-end adjusting entries. What is the Bad Debt Expense for the year? $5,000 $11,000 $250 $8,000 $3,000
$3,000 SOLUTION 5% x 160,000= 8000 8000-5000= 3,000
A company issues a $8,000, 9%, 9-month note on May 1. How much accrued interest should it report on its balance sheet dated December 31 of the same year? $720 $480 $400 $240 $60
$480 SOLUTION 8,000 x 9% x 8/12 = 480
On January 1, a company's allowance for doubtful accounts had a debit balance of $21,000. During the year, it had net credit sales of $900,000 and it had $20,000 of uncollectible accounts receivable that were written off. Past experience indicates that the allowance should be 6% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 is $200,000, what is the bad debt expense for the year? $33,000 $11,000 $19,000 $53,000 No credit adjustment needed
$53,000 SOLUTION allowance for doubtful accounts debit balance: 21,000 + 20,000= 41,000 credit balance: 200,000 x 6%= 12,000 bad debt expense: 12,000+ 41,000= 53,000
The following information relates to the beginning of the year:Accounts receivable, $245,000Allowance for doubtful accounts (credit balance), $12,250During the current year, sales on account were $1,100,000 and collections on account were $990,000. Also during the current year, the company wrote off $14,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $17,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year? $94,250 decrease $91,250 increase $105,250 increase $80,750 increase $4,750 increase
$91,250 increase SOLUTION ending acc. receivable: 245,000+1,100,000-990,000-14,000= 341,000 ending cash realizable value: 341,000-17,000= 324,000 beginning cash realizable value: 245,000- 12,250= 232,750 increase (decrease) in cash realizable value: 324,000- 232,750= 91,250
On May 12, a company sold merchandise on account to a customer for $2,000 with terms 2/10, n/30. On May 18, the customer returns merchandise worth $200. On May 24, the customer pays the company the balance due. What is the amount of cash received by the company on May 24? $1,766 $1,800 $1,770 $2,000 $1,760
1,800 SOLUTION 2,000-200=1,800
A company's unadjusted trial balance includes the following balances (assume normal balances): Accounts Receivable, $3,357,000 Allowances for Doubtful Accounts (credit balance), $63,900 Uncollectible accounts are estimated to be 6% of outstanding accounts receivables. What amount of bad debt expense will the company record?
137,520 SOLUTION credit balance: 6% x 3,357,000= 201,420 201,420- 63,900= 137,520
Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. The Allowance for Doubtful Accounts has a $9,000 credit balance before recording the year-end adjusting entries. What is the bad debt expense for the period?
31,000
A corporation had net credit sales during the year of $400,000 and cost of goods sold of $150,000. The net accounts receivable at the beginning of the year was $60,000 and at the end of the year was $70,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,300,000. How much is the accounts receivables turnover? 6.00 6.33 5.71 6.15 6.67
6.15 SOLUTION accounts receivable turnover= 400,000/[(60,000+70,000)/2]= 6.15
A company's net credit sales are $800,000, average inventory totals $50,000, average net accounts receivables is $40,000, and average cash is $4,000. How much is the average collection period (also known as the days in receivable ratio)? 22.8125 days 18.25 days 20.277 days 2.5 days 16.425 days
8.25 days SOLUTION There are two steps: The accounts receivable turnover is net credit sales divided by average net accounts receivable = $800,000/$40,000 = 20 times The average collection period is 365 divided by the accounts receivable turnover ratio = 365/18 = 18.25 days
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? Payment risk Credit risk A concentration of credit risk Interest risk Concentration risk
A concentration of credit risk
Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. The Allowance for Doubtful Accounts has a $9,000 debit balance before recording the year-end adjusting entries. What will be the balance of the Allowance for Doubtful Accounts after adjustment? A credit balance of $31,000 A credit balance of $40,000 A credit balance of $49,000 A debit balance of $49,000 A debit balance of $40,000
A credit balance of $40,000 SOLUTION after the year end adjusting, the allowance for doubtful accounts will equal the estimated uncollectible accounts which is 40,000.
Which of the following are used to compute cash realizable value? Accounts Receivable and Allowance for Doubtful Accounts None of these Bad Debt Expense and Accounts Receivable Bad Debt Expense and Allowance for Doubtful Accounts Cash and Allowance for Doubtful Accounts
Accounts Receivable and Allowance for Doubtful Accounts
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? Retained Earnings is credited. Accounts Receivable is credited. Bad Debts Expense is credited. Cash is credited. Allowance for Doubtful Accounts is credited.
Accounts Receivable is credited.
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
If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts the recovery A) will decrease the company's total assets in the period it is collected. B) will increase the company's total assets in the period it is collected. C) does not affect the company's total assets in the period it is collected. D) requires the company retroactively restate its prior period's income at a higher amount than originally reported. E) requires the company retroactively restate its prior period's income at a lower amount than originally reported.
C) does not affect the company's total assets in the period it is collected.
A company holds a $20,000, 90-day, 8% note issued by a corporation. What is the journal entry recorded by the company that holds the note when it matures assuming no interest has previously been accrued? Debit Cash for $20,400, credit Notes Receivable for $20,000, and credit Interest Revenue for $400 Debit Cash for $20,000 and credit Notes Receivable for $20,000 Debit Accounts Receivable for $20,400, credit Notes Receivable for $20,000, and credit Interest Revenue for $400 Debit Cash for $20,400 and credit Notes Receivable for $20,400 Debit Cash for $20,000, debit Interest Revenue for $400, and credit Notes Receivable for $20,400
Debit Cash for $20,400, credit Notes Receivable for $20,000, and credit Interest Revenue for $400 SOLUTION interest= 20,000 x 8% x 90/360 = 400 total cash received= 20,000 + 400= 20,400
A company loaned $25,000 to a debtor on June 1, at 12% interest for 3 months. What adjusting entry should the company record on June 30 before preparing the financial statements on June 30? Debit Interest Expense for $250 and credit Interest Payable for $250 Debit Cash for $25,000 and credit Interest Revenue for $25,000 Debit Interest Expense for $750 and credit Interest Payable for $750 Debit Interest Receivable for $750 and credit Interest Revenue for $750 Debit Interest Receivable for $250 and credit Interest Revenue for $250
Debit Interest Receivable for $250 and credit Interest Revenue for $250 SOLUTION interest= 25000 x 12% x 1/12 = 250
When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be credited in these two journal entries?
First the allowance for doubtful accounts and second accounts receivable
At what value are accounts receivable reported on the balance sheet? Accumulated market value Present value Future value Maturity value Net realizable value
Net realizable value
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?
a debit to cash, a credit to notes receivable, and a credit to interest revenue
Michael Co. accepts a $4,000, 3-month, 12% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as
a debit to notes receivable for $4,000, and a credit to accounts receivable for $4,000
Which one of the following account pairs are both permanent accounts?
accounts receivable; allowance for doubtful accounts
Under the allowance method, writing off an uncollectible account affects no balance sheet accounts or income statement accounts. affects two income statement accounts. affects one balance sheet account and one income statement account. affects two balance sheet accounts. violates Generally Accepted Accounting Principles.
affects two balance sheet accounts.
A company factors $500,000 of its receivables. The factor assesses a 3% service charge on the amount of receivables sold. What journal entry does the company record when factoring these receivables?
cash 485,000 service charge expense 15,000 accounts receivable. 500,000
A high accounts receivable turnover ratio indicates
customers are making payments very quickly
A company accepted a customer's Visa card as payment for $600 of merchandise it sold to the customer. The bank that issued the credit card charges a 2% credit card fee. The company's journal entry to record this transaction will include debit to Cash of $600. credit to Service Charge Expense of $12. debit to Service Charge Expense of $12. credit to Sales Revenue for $588. credit to Cash of $588.
debit to Service Charge Expense of $12. SOLUTION the sales revenue is $600, but the retailer incurs a 2% fee so it collects 98% of revenue. It collects $588. It also incurs a $12 service charge fee as an expense.
When an account receivable is written off using the allowance method, the
net realizable value stays the same
Interest is almost always associated with doubtful accounts. bad debts. notes receivable. accounts receivable. trade receivables.
notes receivable