ch 8 quiz

Bad Debt Expense is reported on the income statement as

an operating expense.

Which of the following is false with regards to notes receivable?

When a note is dishonored, the lender no longer has a claim against the maker of the note.

If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes

a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800.

Michael Co. accepts a $4,000, 3-month, 8% 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 of the following accounts is debited when a company factors its accounts receivable?

cash

The maturity value of a $40,000, 9%, 50-day note receivable dated July 3 is

$40,500.

The interest on a $4,000, 9%, 90-day note receivable is

$90

Edward 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?

6.15

Offering discounts for early payment is a method used by companies to

Accelerate the collection of cash

Which one of the following is not one of the principles of managing accounts receivable?

Cross-indexing journal-entries with the postings to the ledger

Short-term notes receivable are reported in the current assets section of the balance sheet at

cash realizable value

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

when an account is determined to be uncollectible.

Colburn Corporation has the following receivables: Income tax refund due, $500 Advance due to the company from the company president, $300 3-month note due from the company largest customer, $2,000 Interest receivable on a 3-month note, $100 Accounts receivable, $8,000 What are the company's total trade receivables?

$10,000

On January 1, Putnam Wholesale Company's Allowance for Doubtful Accounts had a credit 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 required credit adjustment to the Allowance for Doubtful Accounts at December 31?

$11,000

At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $40,000. During the current year, sales on account were $195,000 and collections on account were $170,000. Also during the current year, the company wrote off $21,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $32,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$12,000 increase

Lansing Construction Company had the following receivables: Employee advances $ 500 Notes receivable (i.e., promissory notes from customers in exchange for services performed by Lansing Construction Co. 3,500 Income taxes refundable 2,000 Accounts receivable 13,000 Notes receivable (i.e., promissory notes obtained from creditors who purchased used equipment from Lansing Construction Co. 3,000 Interest receivable 200 Loans to company officers 4,400 Based on this information, what is the company's trade receivables?

$16,500

How much accrued interest should be reported on the payee's December 31 balance sheet on a $6,000, 7%, 9-month note receivable issued on August 1?

$175

A company has an ending accounts receivable balance of $900,000 and estimates that uncollectible accounts will be 2% of its accounts receivable balance. If the Allowance for Doubtful Accounts has a credit balance of $2,000 prior to year-end adjustment. What will be the balance of the Allowance for Doubtful Accounts after year-end adjusting entries have been recorded?

$18,000 credit balance.

During the current year, Wheeler Company had sales on account of $528,000, cash sales of $216,000, and collections on account of $336,000. In addition, Wheeler Company also collected $5,800 from a customer whose account Wheeler Company had been written off as uncollectible in the prior year. As a result of these transactions, the current year change in the accounts receivable balance is a

$192,000 increase.

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?

$3,000

Belushi Company has the following receivables: Advances to employees $ 1,580 Accounts receivable 1,050 Income taxes refundable 1,120 Interest receivable 950 Note receivable issued by its largest customer 2,520 A loan to the company president 8,000 Based on this information, what is the company's trade receivables?

$3,570

On December 14, Walton Company sold $5,000 of merchandise on account to a customer with terms 1/10, n/30. On December 20, the customer returned $1,200 of merchandise to Walton Company. Walton Company received no payments from that customer in December. On December 21, Walton Company received $1,500 from a different customer for merchandise to be delivered in January. What is Walton Company's accounts receivable on December 31?

$3,800

At the start of the year, Willet Company's Allowance for Doubtful Accounts had a credit balance of $22,000. During the year, it had credit sales of $1,100,000. It also wrote-off $50,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 2% of the balance in receivables. If the accounts receivable balance at December 31 was $250,000, what is the required adjustment to the Allowance for Doubtful Accounts that is needed at year-end?

$33,000

The maturity value of a $40,000, 9%, 60-day note receivable dated July 3 is

$40,600.

The maturity value of a $40,000, 9%, 70-day note receivable dated July 3 is

$40,700.

At the beginning of the year, a company had accounts receivable of $700,000 and an allowance for doubtful accounts with a credit balance of $60,000. During the current year, sales on account were $195,000 and collections on account were $115,000. Also during the current year, the company wrote off $11,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $72,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$57,000 increase.

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $800,000; Allowance for doubtful accounts balance before adjustment (credit balance), $12,000; Amounts expected to become uncollectible, $65,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?

$735,000

The following information relates to the beginning of the year:Accounts receivable, $700,000Allowance for doubtful accounts (credit balance), $60,000Cash realizable value, $640,000During the current year, sales on account were $195,000 and collections on account were $95,000. Also during the current year, the company wrote off $11,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a $72,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

$77,000 increase.

The following information relates to the beginning of the year: Accounts receivable, $245,000 Allowance 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?

$91,250 increase

Net credit sales are $900,000, average inventory totals $60,000, average net receivables total $50,000, and the allowance for doubtful accounts totals $5,000. How much is the average collection period (also known as the days in receivable ratio)?

20.277 days

Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.50. What is its average collection period (also known as the days in receivable ratio)?

48.67 days

Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The net accounts receivable at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover?

6.4

Star 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 days

Edward Corporation had net credit sales during the year of $750,000 and cost of goods sold of $500,000. The net accounts receivables at the beginning of the year was $75,000 and at the end of the year was $110,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover?

8.11

On May 2, Cartwright Company receives a $4,000, 3-month, 10% note from Fulcrum Company as a settlement of its accounts receivable. What journal entry will Cartwright Company record on May 2?

A debit to Notes Receivable for $4,000 and a credit to Accounts Receivable for $4,000

Which of these statements about national credit card (e.g., Visa) sales is correct?

A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer.

Which of these is a generally accepted method for accounting for uncollectible accounts when a company has a significant amount of expected bad debt losses?

Allowance method for uncollectible accounts

In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 16.0 Beta 13.1 Gamma 12.5 Delta 10.9 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?

Alpha

When is a receivable recorded by a merchandiser?

At the point of sale of the merchandise on account.

If a company's Allowance for Doubtful Accounts has a debit balance immediately prior to year-end adjusting entries

Bad Debt Expense has been underestimated.

Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end. The total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $200 before the year-end adjusting entry for Bad Debt Expense?

Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000

Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?

Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900

Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?

Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200

Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $90,000 at year-end. The total credit sales were $2,600,000 for the year. Management estimates that 4% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $300 before the year-end adjusting entry for Bad Debt Expense?

Bad Debts Expense 3,900 Allowance for Doubtful Accounts 3,900

Bright Electronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $150,000 at year-end and the total credit sales were $700,000. Management estimates that 5% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?

Bad Debts Expense 6,700 Allowance for Doubtful Accounts 6,700

Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction?

Cash for $48,000 and Service Charge Expense for $2,000

Good Stuff Retailers accepted $60,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 4% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction?

Cash for $57,600 and Service Charge Expense for $2,400

Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?

Credit balance of $12,000

When an uncollectible account is recovered after it has been written off two journal entries are recorded. Which of the following journal entries will be recorded second?

Debit Cash and credit Accounts Receivable

Laurel Company factors $300,000 of receivables to Hardy Factors. Hardy Factors assesses a 3% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?

Debit Cash for $291,000, debit Service Charge Expense for $9,000, and credit Accounts Receivable for $300,000

Laurel Company factors $500,000 of receivables to Hardy Factors. Hardy Factors assesses a 4% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs?

Debit Cash for $480,000, debit Service Charge Expense for $20,000, and credit Accounts Receivable for $500,000

Baker Co. loaned $25,000 to Idaho Co. on June 1, at 12% interest for 3 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?

Debit Interest Receivable for $250 and credit Interest Revenue for $250

Baker Co. loaned $30,000 to Idaho Co. on May 1, at 10% interest for 3 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?

Debit Interest Receivable for $500 and credit Interest Revenue for $500

Baker Co. loaned $30,000 to Idaho Co. on April 1, at 12% interest for 4 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?

Debit Interest Receivable for $900 and credit Interest Revenue for $900

A bank holds a 120-day, 10%, $21,000 note. The maker of the note pays in full on the maturity date. Which of the following is part of the journal entry that the bank will record on the maturity date?

Debit to Cash for $21,700

Kensington Company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. Kensington's bank charges it a 5% fee. Which one of the following is part of the journal entry to record this transaction?

Debit to Cash for $6,650

Which one of the following is not one of the principles of managing accounts receivable?

Determining from which vendor credit should be requested

When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be debited in these two journal entries?

First Accounts Receivable and second Cash

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

In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 14.0 Beta 16.5 Gamma 9.5 Delta 11.5 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the lowest likelihood of paying its current obligations?

Gamma

When the allowance method for uncollectible accounts is used, a company records Bad Debt Expense when

adjusting entries are recorded.

Short-term notes receivable are reported in the current assets section of the balance sheet at

cash realizable value.

A company uses the allowance method for uncollectible accounts. Last year, a customer purchased $100 of services on account from the company. In the current year, the company is notified that the customer is bankrupt and will not pay the company the amount owed. What journal entry does the company record when it is notified that the customer will not pay?

debit Allowance for Doubtful Accounts and credit Accounts Receivable.

When an account is written off using the allowance method, accounts receivable

decreases and the allowance account decreases

When an account is written off using the allowance method, accounts receivable

decreases and the allowance account decreases.

Writing-off a specific customer's accounts receivable under the allowance method

does not affect the balance of Cash

The direct write-off method of accounting for bad debts

does not require estimates of bad debt expense.

Receivables are assets that must be reported in the order of ______?

liquidity

Which of the following receivables would not be classified as an "other receivable"?

notes receiveable

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $1,200,000; Allowance for doubtful accounts balance before adjustment (credit balance), $24,000; Amounts expected to become uncollectible, $115,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries?

$1,085,000

On December 14, Walton 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 Walton Company. Walton Company collects from the customer on December 21. What is the amount of cash received by Walton Company?

$1,176

On May 12, Kelsey Company sold merchandise on account to Buyer Co. for $2,000 with terms 2/10, n/30. On May 18, Buyer Co. returns merchandise worth $200 to Kelsey Company. On May 24, Buyer Co. pays the balance due. What is the amount of cash received by Kelsey Company on May 24?

$1,800

At what value are accounts receivable reported on the balance sheet?

Cash realizable value

At what value are accounts receivable reported on the balance sheet?

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?

One debit and two credits

If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?

Provide the customer a lengthy payment period

Which of the following accounts is debited when a company factors its accounts receivable?

Service Charge Expense

Which of these statements about national credit card (e.g., Visa) sales is incorrect?

The retailer receives more cash when customers use national credit cards than when customers pay with cash instead of credit cards.

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts.

One might infer from a debit balance in Allowance for Doubtful Accounts that

more accounts have been written off than the estimates for bad debts.

Interest is almost always associated with

notes receivable.

The Allowance for Doubtful Accounts is necessary in accrual accounting because

when recording uncollectible accounts expense, it is not possible to know which specific accounts will not be collected from customers.

Which one of the following is not a method used by companies to accelerate cash receipts?

writing off receivables