F3 M2 Trade Receivables

CPA-00280 Ward Co. estimates its uncollectible accounts expense to be 2% of credit sales. Ward's credit sales during the current year were $1,000,000. During the year, Ward wrote off $18,000 of uncollectible accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on January 1. In its December 31 income statement, what amount should Ward report as uncollectible accounts expense? A. $23,000 B. $20,000 C. $18,000 D. $17,000

Allowance for Uncollectible Accounts Begin balance Jan. 1 15,000 Add: Uncollectible accounts expense (Provision) (2% of credit sales of $1,000,000) 20,000 Subtotal 35,000 Less: Write-offs (18,000) Ending balance Dec. 31 (Derived) 17,000 Choice "B" is correct. $20,000 uncollectible accounts expense. The only pertinent info is the: Credit Sales 1,000,000 Uncollectible Provision 2% Uncollectible Expense 20,000

CPA-00058 Delta, Inc. sells to wholesalers on terms of 2/15, net 30. Delta has no cash sales but 50% of Delta's customers take advantage of the discount. Delta uses the gross method of recording sales and trade receivables. An analysis of Delta's trade receivables balances at December 31 revealed the following: Age Amount Collectible 0-15 days $100,000 100% 16-30 days 60,000 95% 31-60 days 5,000 90% Over 60 days 2,500 $500 $167,500 In its December 31 balance sheet, what amount should Delta report for allowance for discounts? A. $1,000 B. $1,620 C. $1,675 D. $2,000

Choice "A" is correct, $1,000 allowance for discounts at 12/31. Accounts receivable (0-15 days) 100,000 50% of customers take 2% discount x 1% Allowance for discounts at 12/31 1,000

CPA-00044 When the allowance method of recognizing uncollectible accounts is used, the entry to record the writeoff of a specific account: A. Decreases both accounts receivable and the allowance for uncollectible accounts. B. Decreases accounts receivable and increases the allowance for uncollectible accounts. C. Increases the allowance for uncollectible accounts and decreases net income. D. Decreases both accounts receivable and net income

Choice "A" is correct, when the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account decreases both accounts receivable and the allowance for uncollectible accounts. Debit (Dr) Credit (Cr) Allowance for uncollectible accounts XX Accounts receivable XX Choice "B" is incorrect. The allowance for uncollectable accounts decreases. Choice "C" is incorrect. The allowance for uncollectible accounts decreases, but net income is not affected. Choice "D" is incorrect. Net income is not affected

CPA-04476 At January 1, Jamin Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2% of Jamin's credit sales have been uncollectible. During the year, Jamin wrote off $325,000 of uncollectible accounts. Credit sales for the year were $9,000,000. In its December 31, balance sheet, what amount should Jamin report as allowance for uncollectible accounts? A. $115,000 B. $180,000 C. $245,000 D. $440,000

Choice "A" is correct. Beginning Balance 260,000 Additions: ($9,000,000 × 2%) 180,000 Subtract: write-offs (325,000) Ending Balance 115,000 Choice "B" is incorrect. $180,000 is the bad debt expense and the question asks for the allowance. Choice "C" is incorrect. $245,000 is calculated by subtracting both the write-offs of $325,000 and the bad debt expense of $180,000 from the $260,000 beginning balance of the account. The bad debt expense is an add, not a subtract. Choice "D" is incorrect. $440,000 is calculated by adding the $180,000 bad debt expense to the $260,000 beginning balance of the account and by not subtracting the write-offs.

CPA-00261 Mill Co.'s allowance for uncollectible accounts was $100,000 at the end of Year 2 and $90,000 at the end of Year 1. For the year ended December 31, Year 2, Mill reported bad debt expense of $16,000 in its income statement. What amount did Mill debit to the appropriate account in Year 2 to write off actual bad debts? A. $6,000 B. $10,000 C. $16,000 D. $26,000

Choice "A" is correct. $6,000. Allowance for Uncollectible Accounts Beginning balance 12-31-Year 1 $90,000 Add: Bad debt expense 16,000 Subtotal 106,000 Less: Actual bad debt write-off (6,000) ← squeeze Ending balance 12-31-Year 2 $100,000 This question is typical of many multiple choice questions asking the candidate to "squeeze out" one of the 4 figures in an "accounts receivable" or "allowance for accounts receivable" account.

CPA-00165 The following information pertains to Oro Corp.: Credit sales for the year ended December 31 450,000 Credit balance in allowance for uncollectible accounts at January 1 10,800 Bad debts written off during the year 18,000 According to past experience, 3% of Oro's credit sales have been uncollectible. After provision is made for bad debt expense for the year ended December 31, the allowance for uncollectible accounts balance would be: A. $6,300 B. $13,500 C. $24,300 D. $31,500

Choice "A" is correct. $6,300. Allowance for uncollectible accounts Balance 1-1 10,800 Add: Provision for bad debts (3% × 450,00) 13,500 Sub Total 24,300 Less: Bad debt write offs (18,000) Balance 12-31 6,300

CPA-00329 Garr Co. received a $60,000, 6-month, 10% interest-bearing note from a customer. After holding the note for two months, Garr was in need of cash and discounted the note at the United Local Bank at 12%. The amount of cash Garr received from the bank was: A. $60,480 B. $60,630 C. $61,740 D. $62,520

Choice "A" is correct. $60,480 cash proceeds received from bank. Approach I II Net Proceeds At Discount Net Interest Revenue (Expense) Face of note 60,000 60,000 Int Rt on note 10% × 1/2 yr × 5% 3,000 3,000 Maturity value of note 63,000 63,000 Disc by bank - 12% × 4/12 yr × 4% (2,520) (2,520) Proceeds from bank 60,480 A Net interest income (expense) 480

CPA-00274 When the allowance method of recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off would: A. Increase the allowance for uncollectible accounts. B. Increase net income. C. Decrease the allowance for uncollectible accounts. D. Have no effect on the allowance for uncollectible accounts.

Choice "A" is correct. A collection of a previously written-off account receivable would increase the "allowance" account, which is a credit balance account. Debit (Dr) Credit (Cr) Cash 1,000 Allowance for doubtful accounts 1,000

CPA-00171 A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on: A. Aging the receivables. B. Direct write off. C. Gross sales. D. Credit sales less returns and allowances.

Choice "A" is correct. Aging the receivables. Estimating bad debts on the aging analysis of accounts receivable balances focuses on the balance sheet and emphasizes the valuation of assets. It results in a good matching of revenue and expense. Choice "B" is incorrect. The (specific) "write-off method" overstates the collectible amount of accounts receivable by not allowing for those that become uncollectible. It results in a poor matching of revenue and expense. Choices "C" and "D" are incorrect. Estimating bad debts based on sales emphasizes the income statement and results in a good matching of revenue and expense.

CPA-00269 Bee Co. uses the direct write-off method to account for uncollectible accounts receivable. During an accounting period, Bee's cash collections from customers equal sales adjusted for the addition or deduction of the following amounts: A. Deduction Deduction B. Addition Deduction C. Deduction Addition D. Addition Addition

Choice "A" is correct. Deduction - Deduction. During an accounting period, cash collections from customers would equal sales adjusted by deducting "accounts receivable written off" and deducting the "increase in the accounts receivable balance." Choices "B", "C", and "D" are incorrect based on the above explanation.

CPA-06597 On April 1, Aloe, Inc. factored $80,000 of its accounts receivable without recourse. The factor retained 10% of the accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of the factored receivables. What amount of cash did Aloe receive from the factored receivables? A. $68,000 B. $68,400 C. $72,000 D. $76,000

Choice "A" is correct. Factoring involves a company converting its receivables into cash by assigning them to a "factor" either with or without recourse. Aloe factored its receivables without recourse, meaning the sale is final and the factor assumes the risk of any losses. Of the $80,000 factored, 10% was retained by the factor ($80,000 x 10% = $8,000) and another 5% for commission is taken off ($80,000 x 5% = $4,000) to get to cash received of $68,000 ($80,000 - $8,000 - $4,000). Choice "B" is incorrect. This choice incorrectly applies the commission rate to the net amount after accounting for the amount retained by the factor. Choice "C" is incorrect. This choice doesn't account for the 5% commission. Choice "D" is incorrect. This choice doesn't account for the 10% retained by the factor.

CPA-00060 On March 31, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following: Age Amount Estimated uncollectible 0-30 days $60,000 5% 31-60 days 4,000 10% Over 60 days 2,000 $1,400 What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet? A. $4,800 B. $4,000 C. $3,800 D. $3,000

Choice "A" is correct. If bad debts are based on accounts receivable, the result of the aging will be the balance in the allowance account. $60,000 x 5% 3,000 $4,000 x 10% 400 Over 60 days 1,400 Total 4,800 Note: The bad debt expense for the year would be $3,800 ($4,800 - $1,000). Choice "B" is incorrect. If bad debts are based on accounts receivable, the results of the aging will be the balance in the allowance for uncollectibles account. Choice "C" is incorrect. $3,800 is the bad debt expense for the year. If accounts receivable is the basis for bad debts, the aging results is the balance in the allowance for uncollectibles account. Choice "D" is incorrect. If bad debts are based on accounts receivable, the results of the aging will be the balance in the allowance for uncollectible account.

CPA-00271 Gibbs Co. uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account: A. Affects neither net income nor working capital. B. Affects neither net income nor accounts receivable. C. Decreases both net income and accounts receivable. D. Decreases both net income and working capital.

Choice "A" is correct. Neither net income nor working capital is affected, as the net AR remains the same. The JE to write off a specific uncollectible account under the "allowance method" for recognizing uncollectible account is: Accounts Receivable Debit (Dr) Credit (Cr) Allowance for uncollectible AR XX Accounts receivable XX Net income is reduced under the "direct write off method." Working capital is reduced under the "direct write off method." Debit (Dr) Credit (Cr) Bad debt expense XX Accounts receivable XX Choices "B", "C", and "D" are incorrect, per above.

CPA-00064 The following information pertains to Tara Co.'s accounts receivable at December 31, Year 2: Days outstanding Amount Estimated % uncollectable 0-60 $120,000 1% 61-120 90,000 2% Over 120 100,000 6% $310,000 During Year 2, Tara wrote off $7,000 in receivables and recovered $4,000 that had been written off in prior years. Tara's December 31, Year 1, allowance for uncollectible accounts was $22,000. Under the aging method, what amount of allowance for uncollectible accounts should Tara report at December 31, Year 2? A. $9,000 B. $10,000 C. $13,000 D. $19,000

Choice "A" is correct. Under the aging method of calculating uncollectible accounts, the balance in the allowance account is determined by multiplying receivables by the uncollectible percentage. The existing balance in the allowance account is used to determine the expense for the year. $120,000 x 1% 1,200 $90,000 x 2% 1,800 $100,000 x 6% 6,000 Allowance, 12/31/Year 2 9,000

CPA-00036 At January 1, Year 4, Jamin Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Jamin's credit sales have been uncollectible. During Year 4, Jamin wrote off $325,000 of uncollectible accounts. Credit sales for Year 4 were $9,000,000. In its December 31, Year 4, balance sheet, what amount should Jamin report as allowance for uncollectible accounts? A. $115,000 B. $180,000 C. $245,000 D. $440,000

Choice "A" is correct. Under the percentage of credit sales approach, uncollectible accounts expense would be debited and allowance for uncollectible accounts would be credited for $180,000 (2% x $9,000,000). For accounts written off, allowance for uncollectible accounts would be debited and accounts receivable would be credited for $325,000. The December 31, Year 4 allowance for uncollectible accounts balance would be $115,000 ($260,000 + $180,000 - $325,000). Choice "B" is incorrect. $180,000 is the Year 4 addition to the allowance for uncollectible accounts recognized under the percentage of credit sales method. It does not represent the balance of the account at year-end. Choice "C" is incorrect. This calculation incorrectly debits the allowance for uncollectible accounts for the $180,000 adjustment. Choice "D" is incorrect. This calculation does not reduce (debit) the allowance for uncollectible accounts for the $325,000 of accounts written off.

CPA-00009 Which method of recording uncollectible accounts expense is consistent with accrual accounting? A. Yes Yes B. Yes No C. No Yes D. No No

Choice "B" is correct, Yes - No. Allowance method is consistent with accrual accounting; direct write-off is not consistent with accrual accounting

CPA-00049 Inge Co. determined that the net value of its accounts receivable at December 31, 1993, based on an aging of the receivables, was $325,000. Additional information is as follows: Allowance for uncollectible accounts, 1/1/93 30,000 Uncollectible accounts written off during 1993 18,000 Uncollectible accounts recovered during 1993 2,000 Accounts receivable at 12/31/93 350,000 For 1993, what would be Inge's uncollectible accounts expense? A. $5,000 B. $11,000 C. $15,000 D. $21,000

Choice "B" is correct. Allowance for uncollectible accounts: Beginning balance 30,000 Uncollectible accounts written off (18,000) Written off accounts now collectible 2,000 Uncollectible accounts expense ? Year end balance 25,000 Thus, the expense (?) equals $11,000. Note that $350,000 accounts receivable less the allowance for uncollectible accounts balance equals the $325,000 net accounts receivable. Choice "A" is incorrect. Uncollectible accounts expense is not defined as the difference between the beginning balance in the allowance for uncollectible account and the ending balance without regard for transactions during the year Choice "C" is incorrect. The allowance account should be credited for the $2,000 written off accounts now collectible. Choice "D" is incorrect. The allowance account should be credited for the $2,000 written off accounts now collectible, and debited for the $18,000 uncollectible accounts written off.

CPA-05437 Red Co. had $3 million in accounts receivable recorded on its books. Red wanted to convert the $3 million in receivables to cash in a more timely manner than waiting the 45 days for payment as indicated on its invoices. Which of the following would alter the timing of Red's cash flows for the $3 million in receivables already recorded on its books? A. Change the due date of the invoice. B. Factor the receivables outstanding. C. Discount the receivables outstanding. D. Demand payment from customers before the due date

Choice "B" is correct. Factoring receivables is the process by which a company converts its receivables to cash by assigning them to a factor, either with or without recourse. Choice "A" is incorrect. The fact that the receivables have been recorded implies that the company has already sent invoices to its customers setting the payment due date. Generally, the due date cannot be changed after the invoice has been sent, nor is changing the due date likely to speed up the overall customer payment rate. Choice "C" is incorrect. Discounting is the process of converting notes receivable, not accounts receivable, to cash. Choice "D" is incorrect. Demanding payment from customers before the due date is likely to anger customers, but is not likely to speed up the overall customer payment rate. The invoice sets the payment terms of the receivable.

CPA-00342 After being held for 40 days, a 120-day 12% interest-bearing note receivable was discounted at a bank at 15%. The proceeds received from the bank equal: A. Maturity value less the discount at 12%. B. Maturity value less the discount at 15%. C. Face value less the discount at 12%. D. Face value less the discount at 15%.

Choice "B" is correct. Maturity value less the discount at 15%. The discount is always applied on the maturity value. Choice "A" is incorrect. The discount is taken at the discount rate (15%), not the note rate (12%). Choice "C" is incorrect. The maturity value is used, not face value, and the discount rate (15%) is used, not note rate (12%). Choice "D" is incorrect. The maturity value is used, not face value

CPA-00039 Which method of recording uncollectible accounts expense is consistent with accrual accounting? A. Yes Yes B. Yes No C. No Yes D. No No

Choice "B" is correct. The allowance method is used to match expenses with revenues and to record the proper carrying amount for accounts receivable. The direct write-off method does not achieve these objectives

CPA-03977 At the end of year one, Boller Co. had an ending balance in allowance for uncollectible accounts of $30,000. During year two, Boller wrote-off $40,000 of accounts receivable. At the end of year two, Boller had $300,000 in accounts receivable and determined that 8% of these would be uncollectible. What amount should be reported as uncollectible accounts expense on Boller's year two income statement? A. $64,000 B. $34,000 C. $24,000 D. $14,000

Choice "B" is correct. The beginning balance in the allowance account for year 2 is 30,000. The write-off decreases the allowance account balance to a negative 10,000. At year-end, the required allowance balance based on the percentage of receivables approach is a positive 24,000 (300,000 × 0.08). An adjusting entry of $34,000 must be recorded to increase the allowance balance to 24,000 at year-end. Dr. Uncollectible accounts expense 34,000, Cr. Allowance for uncollectible accounts 34,000. ADA 30,000 40,000 34,000 ← plug 24,000 Choice "A" is incorrect. 34,000 is the uncollectible accounts expense for year 2. The additional 30,000 that is included in this answer is the beginning balance in the allowance account. This resulted from uncollectible accounts expense recorded in year 1 and should not be added to the year 2 expense. The question asks for year 2 uncollectible accounts expense. Another way this answer could be calculated is if the beginning balance in the allowance account was ignored and assumed to be $0. With a write-off of 40,000, a 64,000 credit would be required to generate an ending balance in the allowance account of 24,000. The beginning balance must be considered in the calculation as the allowance account is a permanent account and ending balances from the previous year carryover as the beginning balances of the current year. Choice "C" is incorrect. 24,000 is the ending balance required in the allowance account (as calculated under the percentage of receivables approach) so an entry must be made to result in that ending balance. If the beginning balance in the allowance account was zero, this answer would be correct. However, the entry to record uncollectible accounts expense must also make-up for the negative (i.e., debit) balance in the allowance that exists after the 40,000 of write-offs have been recorded. If the "percentage of sales" method was being used, reserving 8% of sales and assuming sales totaled 300,000, this answer would be correct. The "percentage of sales" method focuses on the uncollectible accounts expense (with the ending balance in the allowance being whatever results from the uncollectible accounts expense) while the "percentage of accounts receivable at year-end" method focuses on the ending balance in the allowance (with the uncollectible accounts expense being whatever is required to arrive at the required ending balance in the allowance). Choice "D" is incorrect. Some students may recognize that the allowance account balance is in a debit position of 10,000 after the write-off and that the required ending balance is 24,000. So they calculate a required entry of 14,000 (24,000 - 10,000) to bad debt expense. However, the debit position requires an additional 10,000 of bad debt expense to get the allowance account in the proper credit position at yearend. If t-accounts are used as a tool, it is always important to work back through the t-account from start to finish to ensure you can correctly calculate the ending balance (30,000 - 40,000 + 14,000 DOES NOT EQUAL 24,000). ADA 30,000 40,000 14,000 ← DOES NOT WORK 24,000

CPA-08258 A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month? A. $185,000 B. $190,000 C. $195,000 D. $200,000

Choice "B" is correct. The company should record net sales revenue for new sales made during the month as $190,000, which represents $200,000 less the estimated allowance for sales returns associated with the new sales of $10,000 (5% × $200,000). Choice "A" is incorrect. The returns of sales made in prior months of $5,000 would not be included in the calculation of net sales revenue for new sales. Choice "C" is incorrect. When calculating the net sales revenue for new sales during the month, the return of sales made in prior months of $5,000 would not be included in the calculation. Choice "D" is incorrect. Net sales revenue of $200,000 would need to be adjusted for the estimated returns within 90 days.

CPA-07224 Tinsel Co.'s balances in allowance for uncollectible accounts were $70,000 at the beginning of the current year and $55,000 at year end. During the year, receivables of $35,000 were written off as uncollectible. What amount should Tinsel report as uncollectible accounts expense at year end? A. $15,000 B. $20,000 C. $35,000 D. $50,000

Choice "B" is correct. The uncollectible (bad debts) expense is calculated as follows: B Beginning balance, allowance for uncollectible accounts 70,000 A Uncollectible accounts expense Unknown S Accounts written off (35,000) E Ending balance, allowance for uncollectible accounts 55,000 The uncollectible account expense is $20,000. Choice "A" is incorrect. Because there were write-offs during the year, the uncollectible accounts expense is not the difference between the beginning and end of year balances in the allowance account. Choice "C" is incorrect. The accounts written off are specific accounts removed from the accounts receivable listing. The amount written off is not the uncollectible accounts expense because the direct write-off method is prohibited by GAAP. Choice "D" is incorrect. When calculating the ending allowance, the uncollectible accounts expense must be added and the accounts written off must be subtracted.

CPA-04676 Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end? A. $10,000 decrease. B. $10,000 increase. C. $50,000 decrease. D. $50,000 increase.

Choice "B" is correct. Under the percentage-of-receivables method the ending balance in the allowance account is equal to the total estimated uncollectible amount. Foster Co. would have a balance of $50,000 ($1,000,000 x 5%) in its allowance for uncollectible accounts at year end. Using the BASE format the adjustment would equal: Allowance for uncollectible accounts: Beginning balance (given) $40,000 Add expense (squeezed) 10,000 Subtotal (added up) 50,000 Subtract write offs (none given) 0 Ending balance (calculated) $50,000 Journal Entry for above Debit (Dr) Credit (Cr) Bad debt expense 10,000 Allowance for uncollectible accounts 10,000

CPA-04679 Marr Co. had the following sales and accounts receivable balances, prior to any adjustments, at yearend: Credit sales 10,000,000 Accounts receivable 3,000,000 Allowance for uncollectible accounts 50,000 Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year-end. By what amount should Marr adjust allowance for uncollectible accounts at year-end? A. $0 B. $40,000 C. $90,000 D. $140,000

Choice "B" is correct. Under the percentage-of-receivables method the ending balance in the allowance account is equal to the total estimated uncollectible amount. Marr Co. would have a balance of $90,000 ($3,000,000 x 3%) in its allowance for uncollectible accounts at year end. Using the BASE format the adjustment would equal: Allowance for uncollectible accounts: Beginning balance (given) $50,000 Add expense (squeezed) 40,000 Subtotal (added up) 90,000 Subtract write offs (none given) 0 Ending balance (calculated) $90,000 18.12.2 © Becker Professional Ed

CPA-00062 The following information relates to Jay Co.'s accounts receivable for Year 2: Accounts receivable, 1/1/Year 2 650,000 Credit sales for Year 2 2,700,000 Sales returns for Year 2 75,000 Accounts written off during Year 2 40,000 Collections from customers during Year 2 2,150,000 Estimated future sales returns at 12/31/Year 2 50,000 Estimated uncollectible accounts at 12/31/Year 2 110,000 What amount should Jay report for accounts receivable, before allowances for sales returns and uncollectible accounts, at December 31, Year 2? A. $1,200,000 B. $1,125,000 C. $1,085,000 D. $925,000

Choice "C" is correct, $1,085,000 (gross) accounts receivable, before allowances for (future) estimated sales returns and uncollectible accounts. Gross A/R Begin balance, 1/1/Year 2 650 Add: credit sales 2,700 Sub Total 3,350 Less: collections (2,150) Writeoffs (40) Gross A/R Sales returns (75) Ending balance, 12/31/Year 2 1,085

CPA-00008 Ward, a consultant, keeps her accounting records on a cash basis. During Year 2, Ward collected $200,000 in fees from clients. At December 31, Year 1, Ward had accounts receivable of $40,000. At December 31, Year 2, Ward had accounts receivable of $60,000, and unearned fees of $5,000. On an accrual basis, what was Ward's service revenue for Year 2? A. $175,000 B. $180,000 C. $215,000 D. $225,000

Choice "C" is correct, $215,000 service revenue for Year 2. Accounts receivable 12/31/Year 1 40,000 Revenue - squeeze ? 215,000 Sub Total 255,000 Collections (195,000) Balance at 12/31/Year 2 60,000 Note: Collections are $200,000 less $5,000 of unearned fees collected.

CPA-00307 On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to: A. $2,744 B. $2,940 C. $2,944 D. $3,140

Choice "C" is correct. $2,944 Balance Subject to Discount Cost of merchandise sold $5,000 Trade discount % 30% Trade discount amount $1,500 Balance 3,500 $3,500 20% Trade discount amount $700 Balance 2,800 2,800 Cash discount % 2% Cash discount $56 Balance 2,744 Add: Loan of delivery cost 200 Expected remittance $2,944

CPA-00337 Ace Co. sold to King Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments. This note was discounted to yield a 9 % rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows: 8% 3.992 9% 3.890 What should be the total interest revenue earned by King on this note? A. $9,000 B. $8,000 C. $5,560 D. $5,050

Choice "C" is correct. $5,560 total interest revenue. Annual payments = $20,000 ÷ 3.992 = 5,010 Five equal payments of principal and interest. x 5 Total payments 25,050 Discounted note = $5,010 x 3.890 = (19,490) Total interest over five years 5,560

CPA-06564 Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of: A. Consistency. B. Going concern. C. Matching. D. Substance over form.

Choice "C" is correct. Per the matching principle, expenses must be recognized in the same period in which the related revenue is recognized. Matching bad debt expense with associated revenues is correct per GAAP, and the allowance method based on past experience is an appropriate methodology. Choice "A" is incorrect. Consistency is not the applicable concept in this question. Consistency is required in order to compare the performance of a company from one period to another. Choice "B" is incorrect. Going concern is a fundamental assumption that the entity will continue to operate in the foreseeable future. Choice "D" is incorrect. This choice relates to reliability, which is a primary quality of decision usefulness. Information must be valid, and economic substance is more important than legal form.

CPA-00262 Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account: A. Increases the allowance for uncollectible accounts. B. Has no effect on the allowance for uncollectible accounts. C. Has no effect on net income. D. Decreases net income.

Choice "C" is correct. The entry to write-off an uncollectible account under the allowance method has no effect on net income. Example Journal Entry Debit (Dr) Credit (Cr) Allowance for uncollectible accts 700 Accounts receivable 700 Choices "A" and "B" are incorrect. The allowance account is decreased (not increased). Choice "D" is incorrect. Net income is not affected by this transaction.

CPA-00276 When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a (an): A. Account previously written off is collected. B. Account previously written off becomes collectible. C. Specific uncollectible account is written off. D. Provision for uncollectible accounts is recorded

Choice "C" is correct. When a specific uncollectible account is written off under the allowance method of recognizing bad debt expense, the "allowance for bad debt" account would decrease. Choice "A" is incorrect. The "allowance for bad debt" (credit balance account) would increase, if a previously written-off account is collected (DR-Cash, CR-Allowance). Choice "B" is incorrect. When a previously written-off account "becomes collectible," the "allowance for bad debt" account would increase (DR-Accounts Receivable, CR-Allowance). Choice "D" is incorrect. The recording of a provision for uncollectible accounts increases the "allowance for bad debt" account (DR-Provision for bad debts, CR-Allowance).

CPA-00059 Roth Inc. received from a customer a one-year, $500,000 note bearing annual interest of 8 percent. After holding the note for six months, Roth discounted the note at Regional Bank at an effective interest rate of 10 percent. What amount of cash did Roth receive from the bank? A. $540,000 B. $523,810 C. $513,000 D. $495,238

Choice "C" is correct: $513,000 cash proceeds received from the bank. Net proceeds at discount Face of note 500,000 Interest rate on note (8% × 1 yr) × 8% 40,000 Maturity value of note 540,000 Discount by bank (10% × 1/2 yr) × 5% (27,000) Proceeds from bank 513,000

CPA-00260 Orr Co. prepared an aging of its accounts receivable at December 31 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1 -- credit balance 28,000 Accounts written off as uncollectible 23,000 Accounts receivable at 12/31 270,000 Uncollectible accounts recovery 5,000 For the year ended December 31, Orr's uncollectible accounts expense would be: A. $23,000 B. $20,000 C. $15,000 D. $10,000

Choice "D" is correct. $10,000 Allowance for Uncollectible Accounts Beginning balance $28,000 Add: Uncollectible accounts exp. 10,000 ← squeeze Recovery of previous write-offs 5,000 Subtotal 43,000 Less: Accounts written off (23,000) Ending balance ($270,000 − 250,000) $20,000

CPA-00173 The following accounts were abstracted from Roxy Co.'s unadjusted trial balance at December 31: Debit (Dr) Credit (Cr) Accounts receivable 1,000,000 Allowance for uncollectible accounts 8,000 Net credit sales 3,000,000 Roxy estimates that 3% of the gross accounts receivable will become uncollectible. After adjustment at December 31, the allowance for uncollectible accounts should have a credit balance of: A. $90,000 B. $82,000 C. $38,000 D. $30,000

Choice "D" is correct. $30,000. Gross accounts receivable 1,000,000 3% will become collectible 3% Allowance for uncollectible AR 12-31 30,000 Note: It is important to read the question carefully. The tendency here is to compute the allowance as a % of sales.

CPA-00177 For the year ended December 31, Beal Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available: Allowance for uncollectible accounts, 1/1 42,000 Provision for uncollectible accounts (2% on credit sales of $2,000,000) 40,000 Uncollectible accounts written off, 11/30 46,000 Estimated uncollectible accounts per aging, 12/31 52,000 After year-end adjustment, the uncollectible accounts expense should be: A. $46,000 B. $48,000 C. $52,000 D. $56,000

Choice "D" is correct. $56,000 ($40,000 Provision + Adj of $16,000) Allowance for uncollectible AR: Beginning balance 42,000 Add: Provision for year 40,000 Sub Total 82,000 Less: Uncollectible A&R written off (46,000) Ending balance before adjustment 36,000 Estimated uncollectible accounts per aging 52,000 Difference 16,000 JE to reflect difference: Debit (Dr) Credit (Cr) Provision for uncollectible accounts (Expense) 16,000 Allowance for uncollectible accounts 16,000

CPA-05679 When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts? A. Increase Decrease B. Increase No effect C. No effect Decrease D. No effect Increase

Choice "D" is correct. Accounts receivable - No effect; Allowance for uncollectible accounts - Increase. Under the allowance method, the following journal entries are recorded when an account previously written off is subsequently collected: JE #1 - To restore the account previously written off: Debit (Dr) Credit (Cr) Accounts receivable XX Allowance for uncollectible accounts XX JE #2 - To record the cash collection on the account: Debit (Dr) Credit (Cr) Cash XX Accounts receivable XX The debit to accounts receivable in JE#1 is offset by the credit to accounts receivable in JE #2, so there is no effect on accounts receivable. The credit to the allowance for uncollectible accounts in JE #1 increases the allowance. Choices "A", "B", and "C" are incorrect, per the above.

CPA-00034 Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a: A. Loan from Ross collateralized by Gar's accounts receivable. B. Loan from Ross to be repaid by the proceeds from Gar's accounts receivable. C. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar. D. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.

Choice "D" is correct. Factoring receivables without recourse is a sales transaction. Factoring without recourse transfers the risk of uncollectible accounts to the buyer. Choice "A" is incorrect. Pledging receivables is the process of obtaining a loan using the receivables as collateral. Choice "B" is incorrect. Assigning receivables is the process of obtaining a loan by transferring to the lender the debtor's right to cash collected on receivables. Choice "C" is incorrect. Factoring receivables may be treated as a sales transaction. Factoring with recourse leaves the risk of uncollectible accounts with the seller.

CPA-08500 At December 31, Year 1, Gasp Co.'s allowance for uncollectible accounts had a credit balance of $30,000. During Year 2, Gasp wrote off uncollectible accounts of $45,000. At December 31, Year 2, an aging of the accounts receivable indicated that $50,000 of the December 31, Year 2, receivables may be uncollectible. What amount of allowance for uncollectible accounts should Gasp report in its December 31, Year 2, balance sheet? A. $20,000 B. $25,000 C. $35,000 D. $50,000

Choice "D" is correct. The aging of accounts receivable is a method that can be used to estimate uncollectible accounts under the allowance method required by GAAP. The sum of the uncollectible balances for the aging categories, $50,000 at the end of Year 2, is the desired ending balance in the allowance account. Choice "A" is incorrect. This answer represents the difference between the estimated uncollectible accounts at the end of Year 2 and the estimated uncollectible accounts at the end of Year 1. The ending balance at the end of Year 2 should be the amount of estimated uncollectible accounts at the end of Year 2. This amount can be estimated using the percentage of sales method, the percentage of accounts receivable at year-end method, or the aging of receivables method. Choice "B" is incorrect. On its December 31, Year 2, balance sheet, Gasp will report $50,000 as its allowance for uncollectible accounts. Choice "C" is incorrect. This answer represents adding the estimated uncollectible accounts at the end of Year 1 to the estimated uncollectible accounts at the end of Year 2 and then subtracting the accounts that have been written off. The allowance for uncollectible accounts is a valuation account, so the beginning balance is not added to the ending balance to get the ending amount.

CPA-05109 Which of the following methods of determining bad debt expense does not properly match expense against revenue? A. Charging bad debts with a percentage of sales under the allowance method. B. Charging bad debts with a percentage of accounts receivable under the allowance method. C. Charging bad debts with an amount derived from aging accounts receivable under the allowance method. D. Charging bad debts as accounts are written off as uncollectible

Choice "D" is correct. The direct write-off method of handling bad debts is a violation of the matching principle. Choices "A", "B", and "C" are incorrect as they describe alternative GAAP methods to account for bad debts. Each of these methods properly matches expense against revenue.

CPA-07225 During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance method for uncollectable accounts. What impact would the write-off have on net income and total assets? A. Decrease Decrease B. Decrease No effect C. No effect Decrease D. No effect No effect

Choice "D" is correct. The journal entry for a write off of a specific account receivable under the allowance method is as follows: Debit (Dr) Credit (Cr) Allowance for doubtful accounts XXX Accounts receivable XXX Because both accounts are asset accounts, there is no effect on net income or total assets.

CPA-05654 Rue Co.'s allowance for uncollectible accounts had a credit balance of $12,000 at December 31, Year 1. During Year 2, Rue wrote-off uncollectible accounts of $48,000. The aging of accounts receivable indicated that a $50,000 allowance for uncollectible accounts was required at December 31, Year 2. What amount of uncollectible accounts expense should Rue report for Year 2? A. $48,000 B. $50,000 C. $60,000 D. $86,000

Choice "D" is correct. Uncollectible accounts expense of $86,000 should be recorded in Year 2. Uncollectible accounts expense is calculated as follows: Beginning allowance 12,000 Plus: Uncollectible accounts expense ???? ← $86,000 Less: Write-offs (48,000) Ending allowance 50,000 Choices "A", "B", and "C" are incorrect, per the above

CPA-04524 Morris Co. determined that the net realizable value of its accounts receivable at December 31, was $435,000. This estimate was based on an aging schedule. Additional information is as follows: Allowance for uncollectible accounts - January 1 229,000 Uncollectible accounts written off 61,000 Accounts written off in prior years recovered 26,000 Accounts receivable at December 31 700,000 What is Morris's uncollectible accounts expense for the year ended December 31? A. $97,000 B. $123,000 C. $61,000 D. $71,000

Choice "D" is correct.. Beginning balance 229,000 Additions: recoveries 26,000 expense (squeeze) 71,000 Subtract: write-offs (61,000) Ending balance ($700,000 − 435,000) 265,000 Choice "A" is incorrect. $97,000 is calculated by not considering the recoveries of $26,000. If recoveries are not considered, squeezing out the uncollectible accounts expense produces $97,000. Choice "B" is incorrect. $123,000 is calculated by subtracting, instead of adding, the recoveries of $26,000. Choice "C" is incorrect. $61,000 is calculated by using the write-offs as the expense. Using the write-offs as the expense would be the cash basis of accounting (direct write-off method) and not the accrual basis.

CPA-00179 On the December 31 balance sheet of Mann Co., the current receivables consisted of the following: Trade accounts receivable $93,000 Allowance for uncollectible accounts (2,000) Claim against shipper for goods lost in transit (November) 3,000 Selling price of unsold goods sent by Mann on consignment at 130% of cost (not included in Mann's ending inventory) 26,000 Security deposit on lease of warehouse used for storing some inventories 30,000 Total $150,000 At December 31, the correct total of Mann's current net receivables was: A. $94,000 B. $120,000 C. $124,000 D. $150,000

Explanation Choice "A" is correct. $94,000 "Accounts receivable net" includes: Trade accounts receivable 93,000 Less: Allowance for uncollectible accounts (2,000) Add: Claim against shipper for goods lost in transit (before year end) 3,000 Total 94,000 Consigned goods of $26,000 is "inventory" not AR. "Security deposits" are not accounts receivable and generally are not a current asset, as is "accounts receivable."