INT ACC 1 - Chapter 7 CPA/CMA Q's

The following information relates to Jay Co.'s accounts receivable for 2016: Accounts receivable balance, 1/1/2016 $650,000 Credit sales for 2016 2,700,000 Sales returns during 2016 75,000 Accounts receivable written off during 2016 40,000 Collections from customers during 2016 2,150,000 Allowance for uncollectible accounts balance, 12/31/2016 110,000 What amount should Jay report for accounts receivable, before allowances, at December 31, 2016?

$1,085,000 _____________________________________________________________________________________ Accounts receivable, beginning balance $ 650,000 Add: Credit sales 2,700,000 Less: Sales returns (75,000 ) Less: Write-offs (40,000) Less: Cash collections (2,150,000) Accounts receivable, ending balance $ 1,085,000

At January 1, 2016, Simpson Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Simpson's credit sales have been uncollectible. During 2016, Simpson wrote off $325,000 of accounts receivable. Credit sales for 2016 were $9,000,000. In its December 31, 2016, balance sheet, what amount should Simpson report as allowance for uncollectible accounts?

$115,000 _____________________________________________________________________________________ Allowance for uncollectible accounts, beginning balance 260,000 Add: Bad debt expense (2% × $9,000,000) 180,000 Less: Write-offs (325,000) Allowance for uncollectible accounts, ending balance 115,000

The balance in accounts receivable at the beginning of 2016 was $600. During 2016, $3,200 of credit sales were recorded. If the ending balance in accounts receivable was $500 and $200 in accounts receivable were written off during the year, the amount of cash collected from customers was

$3,100 _____________________________________________________________________________________ Accounts receivable, beginning balance $ 600 Add: Credit sales 3,200 Less: Write-offs (200) Less: Accounts receivable, ending balance (500) Cash collections 3,100

West Company had the following account balances at December 31, 2016, before recording bad debt expense for the year: Accounts receivable $ 900,000 Allowance for uncollectible accounts (credit balance) 16,000 Credit sales for 2016 1,750,000 West is considering the following methods of estimating bad debts for 2016: • Based on 2% of credit sales • Based on 5% of year-end accounts receivable What amount should West charge to bad debt expense at the end of 2016 under each method? Percentage of Credit / Percentage of Accounts Sales Receivable

$35,000 and $29,000 _____________________________________________________________________________________ The estimate using the income statement approach is: $1,750,000 × 2% = $35,000 The estimate using the balance sheet approach is Required ending balance ($900,000 × 5%) $45,000 Less: Allowance for uncollectible accounts before recording bad debt expense (16,000) Bad debt expense $29,000

The following information pertains to Tara Co.'s accounts receivable at December 31, 2016: Days Outstanding Amount Estimated % Uncollectible 0-60 $120,000 1% 61-120 90,000 2% Over 120 100,000 6% $310,000 During 2016, Tara wrote off $7,000 in receivables and recovered $4,000 that had been written off in prior years. Tara's December 31, 2015, allowance for uncollectible accounts was $22,000. Under the aging method, what amount of allowance for uncollectible accounts should Tara report at December 31, 2016?

$9,000 _____________________________________________________________________________________ Estimated % Uncollectible × Amount = Required Balance 1% × $120,000 = $1,200 2% × $90,000 = 1,800 6% × $100,000 = 6,000 Total required balance $9,000

Shaefer Company prepares its financial statements according to International Financial Reporting Standards (IFRS). Shaefer sometimes has bank overdrafts that are payable on demand and that fluctuate as part of its cash management program. At the most recent financial reporting date, Shaefer had a €500,000 overdraft in one cash account and a positive balance of €3,000,000 in another cash account. Shaefer should report its cash balances as:

A cash asset of €2,500,000.

Bad debt expense must be estimated in order to satisfy the matching principle when expenses are recorded in the same periods as the related revenues. In estimating bad debt expense for a period, companies generally accrue

Either an amount based on a percentage of credit sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts.

Madison Corporation uses the allowance method to value its accounts receivable and is making the annual adjustments at fiscal year-end, November 30. The proportion of uncollectible accounts is estimated based on past experience, which indicates 1.5% of net credit sales will be uncollectible. Total sales for the year were $2,000,000, of which $200,000 were cash transactions. Madison has determined that the Norris Corporation accounts receivable balance of $10,000 is uncollectible and will write off this account before year-end adjustments are made. Listed below are Madison's account balances at November 30 prior to any adjustments and the $10,000 write-off. Sales $2,000,000 Accounts receivable 750,000 Sales discounts 125,000 Allowance for doubtful accounts 16,500 Sales returns and allowances 175,000 Bad debt expense 0 The entry to write off Norris Corporation's accounts receivable balance of $10,000 will

Have no effect on total assets and net income.

Madison Corporation uses the allowance method to value its accounts receivable and is making the annual adjustments at fiscal year-end, November 30. The proportion of uncollectible accounts is estimated based on past experience, which indicates 1.5% of net credit sales will be uncollectible. Total sales for the year were $2,000,000, of which $200,000 were cash transactions. Madison has determined that the Norris Corporation accounts receivable balance of $10,000 is uncollectible and will write off this account before year-end adjustments are made. Listed below are Madison's account balances at November 30 prior to any adjustments and the $10,000 write-off. Sales $2,000,000 Accounts receivable 750,000 Sales discounts 125,000 Allowance for doubtful accounts 16,500 Sales returns and allowances 175,000 Bad debt expense 0 As a result of the November 30 adjusting entry to provide for bad debts, the allowance for doubtful accounts will

Increase by $22,500 _____________________________________________________________________________________ The entry is to debit bad debt expense and credit the allowance account. Net credit sales were $1,500,000 ($1,800,000 - $125,000 of discounts - $175,000 of returns). Thus, the expected bad debt expense is $22,500 (1.5% × $1,500,000). This amount is recorded regardless of the balance remaining in the allowance account from previous periods. The net effect is that the allowance account is increased by $22,500.

A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off? Allowance for Uncollectible Accounts/Bad Debt Expense

Increase/No effect

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

Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross

Under IFRS, measurement of an impairment of a receivable is required if

There is objective evidence that a loss event has occurred that has an impact on the future cash flows to be collected and that can be estimated reliably.