acg ch8

A corporation's sales revenue for the year is $225,000. It sells all of its goods on account. It has an average collection period of 33.1 days. What is its accounts receivable turnover (rounded)? 11.0 9.2 11.3 9.7 10.9

11.0 Solution:Average collection period = 365/accounts receivable turnoverAccounts receivable turnover = 365/average collection period = 365/33.1 = 11.027

The financial statements of a company reports net sales of $500,000 and its cost of goods sold is $150,000. Its accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. Its average inventory is $55,000. What is the average collection period for accounts receivable in days (rounded)? 40.2 days 86.9 days 57.9 days 29.2 days 43.8 days

43.8 days Solution: Accounts receivable turnover = 500,000/[(80,000 + 40,000)/2] = 8.333 Average collection period = 365/8.333 = 43.80

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 will be the balance of the Allowance for Doubtful Accounts after adjustment? A credit balance of $9,000 A credit balance of $31,000 A credit balance of $49,000 A zero balance A credit balance of $40,000

A credit balance of $40,000 Solution: After the year-end adjusting entry, the allowance for doubtful accounts will equal the estimated uncollectible accounts which is given as $40,000. It will have a credit balance because the allowance for doubtful accounts is a contra assets (and contra assets normally have credit balances).

A company has the following receivables: Advances to employee $ 1,580 Accounts receivable 3,050 Income taxes refundable 1,120 Interest receivable 950 Note receivable issued by its largest customer 2,480 A loan to the company president 8,000 Based on this information, what is the company's trade receivables? A: $5,530 B: $4,550 C: $4,170 D: $4,630 E: $3,650

A: $5,530 Trade receivables result from sales transactions with customers. Accounts receivable are trade receivables. Notes receivable may or may not arise from sales transactions with customers. Notes receivable arising from sales transactions are trade receivables, and notes receivable not arising from sales transactions with customers are not trade receivables. Trade receivables = $3,050 + 2,480 = $5,530

On June 15, a company sold merchandise on account to a customer for $1,000 with terms 2/10, n/30. On June 20, the customer returned $300 of merchandise. On June 24, the customer pays the company the balance due. What is the amount of cash received by the company on June 24? $686 $670 $688 $700 $680

A: 686 Solution: The amount received on June 24 is $686. Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 - return of $300) minus the 2% discount of $14 ($700 x 2%), for a cash amount of $686.

Which of the following accounts is debited when a company factors its accounts receivable? Cash Interest Receivable Interest Expense Accounts Receivable Interest Revenue

Cash Service Charge Expense and Cash are the two accounts debited when accounts receivable are factored.

A company accepted a customer's Visa card as payment for $500 of merchandise it sold to the customer. The bank that issued the credit card charges a 4% credit card fee. The company's journal entry to record this transaction will include a debit or debits to Accounts Receivable for $500. None of these Accounts Receivable for $480 and Service Charge Expense for $20. Cash for $480 and Service Charge Expense for $20. Cash for $500.

Cash for $480 and Service Charge Expense for $20. Solution:The entry includes a credit to Sales for $50,000, a $48,000 debit to Cash, and a debit to Service Charge Expense for $2,000.

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 Cash and second Accounts Receivable First Bad Debts Expense and second Cash First Accounts Receivable and second Cash First the Allowance for Doubtful Accounts and second Bad Debt Expense First the Allowance for Doubtful Accounts and second Accounts Receivable

First Accounts Receivable and second Cash Solution:When an uncollectible account is recovered after it has been written off, two journal entries are recorded. The first journal entry is Accounts Receivable will be debited and Allowance for Doubtful Accounts will be credited (i.e., this reverses the journal entry that wrote-off the account). The second journal entry requires and a debit to Cash and a credit to Accounts Receivable (i.e., this records the customer's payment).Chapter 8, Learning objective 3: Describe the methods used to account for bad debts.

At what value are accounts receivable reported on the balance sheet? Fair market value Correct! Cash realizable value Maturity value Future value Present value

Solution:Accounts receivable are reported at cash realizable value. Also, the terms cash realizable value and net realizable value are synonyms. They both refer to the total amount due from accounts receivable less an estimate for doubtful accounts.

Bad Debt Expense is reported on the income statement as part of cost of goods sold. a contra revenue account. an operating expense. other income and expenses. an expense subtracted from net sales to determine gross profit.

an operating expense. Solution:When using an allowance method for uncollectible accounts, a company records a year-end adjusting entry by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. The bad debt expense is an operating expense (specifically, it is a selling expense) and the Allowance for Doubtful Accounts is a contra account. This year-end adjusting entry is fundamental to accrual basis accounting and the matching principle; it matches estimated expenses associated with uncollectible accounts to sales revenue.

The direct write-off method of accounting for uncollectible accounts emphasizes the matching of expenses with revenues. emphasizes cash realizable value. emphasizes the historical cost principle. is not generally accepted as a basis for estimating bad debts. emphasizes balance sheet relationships.

is not generally accepted as a basis for estimating bad debts. Solution: To account for uncollectible accounts, companies use either (1) the direct write-off method or (2) an allowance method. Under the direct write-off method, a company records an increase to bad debt expense and a decrease to accounts receivable when the company determines that a receivable from a particular customer is uncollectible. The direct write-off method shows only actual losses from uncollectible receivables. Under the direct write-off method, companies often record bad debt expense in a period different from the period in which they record the revenue. No attempt is made to match bad debt expense to sales revenue, The direct write-off method is not acceptable under generally accepted accounting principles (GAAP) unless the company expects bad debt expenses to be immaterial (i.e., insignificant).