chapter 7 accounting for receivables book material

JVL Inc. estimates that 3% of revenue will be uncollectible. If revenue for the year totals $56,300, the uncollectible account expense estimate will be $ blank

$1689

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the amount of uncollectible accounts expense shown on the Year 2 income statement is ______.

$700 Reason: Ending balance in the Allowance for the Doubtful Accounts account = $20,000 x 5% = $1,000. Since the Allowance for the Doubtful Accounts account currently has a $300 balance, $700 of expense must be added to the account.

Given current assets of $500,000, average accounts receivable of $80,000, total assets of $900,000, credit sales of $1,000,000, and cost of goods sold of $700,000, the accounts receivable turnover ratio is ______.

12.50 Reason: $1,000,000 ÷ $80,000 = 12.5.

True or false: The percent of revenue method provides a more acceptable result for estimating uncollectible accounts expense than the percent of receivables approach

False because percentages used in either approach are based on company history and either provides acceptable results.

Which of the following statements about aging accounts receivable is true?

Higher percentages are applied to older accounts. because The total of the aging schedule represents the ending balance in the Allowance for Doubtful Accounts account, not the amount of expense.

the net realizable value of receivables equals ______.

accounts receivable minus the allowance for doubtful accounts

Investing in a note receivable (loaning money) is a(n) ______ transaction.

asset exchange

Under the allowance method, the journal entry to recognize uncollectible accounts expense includes a blank to uncollectible accounts expense and a blank to allowance for doubtful accounts.

debit, credit

When the allowance method is used, the write-off of uncollectible accounts receivable ______.

has no net effect on the financial statements because net realizable value of accounts receivable remains unchanged

Investing in a note receivable (loaning money) does not affect the ______.

income statement

When a company recognizes uncollectible accounts expense, cash flow from operating activities ______.

is not affected

The longer an account receivable remains outstanding, the ______ likely it is to be collected.

less

Which event has no effect on the amount of total assets, net income, or cash flow?

write off an uncollectiable account

On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the net realizable value of receivables shown on the Year 2 balance sheet is ______.

$19,000 Reason: Ending balance in the allowance account = $20,000 x 5% = $1,000. Net realizable value of receivables = $20,000 - $1,000 = $19,000.

Company A has an operating cycle of 43 days and Company B has an operating cycle of 97 days. If Company B pays 6% to finance its $720,000 investment in inventory, the longer operating cycle reduced Company B's earnings by $?

$6,391

Frost Company accepted a credit card payment for $6,000 of services provided to a customer. If the credit card fee is 5% of sales, the Accounts Receivable account will be increased by $ blank and the Service Revenue account will be increased by $ blank

5700 and 6000

Given current assets of $700,000, average accounts receivable of $160,000, credit sales of $1,500,000, cost of goods sold of $900,000 and net income of $100,000, the accounts receivable turnover ratio is ______.

9.38 Reason: $1,500,000 ÷ $160,000 = 9.38.

When a company accepts a credit card with a fee for services rendered, Accounts Receivable ______.

and Credit Card Expense and Service Revenue are all increased

The Allowance for Doubtful Accounts appears on the ______.

balance sheet

Because the percent of receivables method focuses on determining the best estimate of the allowance balance, it is often called the blank approach.

balance sheet approach

The net realizable value of receivables decrease when a company ______.

collects an account receivable. recognizes uncollectible accounts expense

Assets are reported on the balance sheet in order of their what .

liquidity

When a company recognizes uncollectible accounts expense, the amount of ______.

net income decreases total assets decrease total equity decreases

The face value of accounts receivable less an allowance for doubtful accounts equals blank blank value of accounts receivable.

net realizable

companies generally charge interest on what receivables

only notes

The average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert accounts receivable into cash is known as the what

operating cycle

When a company extends credit for a long period of time, the parties frequently enter into a credit agreement, the terms of which are legally documented in a(n) , blank blank

promissory note

The accounts receivable turnover ratio = ______.

sales divided by average accounts receivable

true or false: The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

true because The direct method does not require the use of estimates and an associated allowance account. Instead, it recognizes uncollectible accounts expense when it occurs, thereby simplifying the record keeping process.

Under the direct write-off method, uncollectible accounts expense is recognized ______.

when an account is determined to be uncollectible because The allowance method, not the direct write-off method, estimates and recognizes uncollectible accounts expense via a year-end adjusting entry.