Ch 8 practice questions
On November 1, 2020, ABC, inc. received 3 month $1,500 note recievable with the 8% annual Interest and principal to be collected on February 1. What is the amount of Interest revenue that should be recorded for the year ended December 31, 2020?
$20
Which of following is recorded with a debit to cash and a credit to interest receivable
The receipt of an interest payment for interest previously recorded
Accounts receivable represent
amounts owed to a business by its customers
A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest
channel stuffing
The entry to record the issuance of note receivable is
debit notes receivable credit cash
The adjusting entry to record the allowance for doubtful accounts includes a
debit to bad debt expense Credit to allowance for doubtful accounts
Bad Debt Expense_________.
🔹is a cost of extending credit to customers 🔹is an estimate
Which of the following is the typical sequence of accounting for sales made on account using the allowance method?
1. Accounts Receivable are debited in the period the revenue is recognized 2. Bad Debt Expense is estimated and recorded with an adjusting entry 3. Specific customer balances are written off
Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable on the top to the least favorable ). (Assume the companies have similar credit terms. Company A: 3.4 times Company C: 2.4 times Company B / 5.6 times
1. Company B : 5.6 times 2. Company A: 3.4 times 3. Company C: 2.4 times
2 year note establishment in November that pays interest annually steps
1. Debit Notes Receivable and credit Cash 2. Debit Interest Receivable and credit Interest Revenue 3. Debit Cash and credit Interest Receivable 4. Debit Cash and credit Notes Receivable, Interest Revenue and Interest Receivable
Net sales revenue is $720,000. Beginning and ending net accounts receivable are $62,000 and $58,000 , respectively. Calculate the receivables turnover ratio.
12.0 times 720,000/((62,000+58,000)/2)
Removing an uncollectible account and corresponding allowance from the accounting records is called
A write off
Delectable,Inc.'s unadjusted trial balance includes Accounts Receivable of $ 10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show
Allowance for Doubtful Accounts of $1000 Bad Debt Expense of $950 ($1000- 50 (unadjusted))
By comparing the number of days to collect with the length of the credit policy, companies can infer that customers _________ if the days to collect is high.
Are more likely to default May be dissatisfied with the product or service
Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible . This adjusting entry includes a debit to
Bad debt expense and credit to allowance for a doubtful accounts for $1000
ABC Corp. wants to avoid lengthy cash collection periods andtherefore , allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy ?
Credit card companies charge fees that reduce profits
Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a
Credit to allowance for doubtful accounts of $1,000 Debit to bad debt expense of $1,000
The Allowance for Doubtful Accounts is a contra-asset account. Increases to the account to record the period's estimated bad debt expense) are recorded with
Credits
What are the potential drawbacks of speeding up collections of receivables?
Customers may get annoyed and take their business elsewhere hounding customers to pay if their receivables are past due is time-consuming and costly
Using the aging approach, management estimates that $1000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a
Debit to bad debit expense for $900 Credit to allowance for doubtful accounts of $900
The correct journal entry for the collection of a note receivable includes a ______. Assume the collection of interest is recorded separately.
Debit to cash Credit to notes receivable
An arrangement where recelvables are sold to another company for immediate cash is called
Factoring
Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a debit balance when the amount of write offs recorded during the period is ______ the amount estimated to uncollectible in the prior accounting period.
Greater than
Why would a company debit interest receivable
It generated interest on its notes receivable which will be collected in a later accounting period
If a company is debiting Interest Receivable and crediting Interest Revenue, what must be the case?
It is the end of the accounting period and it's adjusting entry for interest generated but not yet collected
The receivables turnover ratio gives information on how
Many times the company sells and collects amounts on account per year
What effect does a write-off have on the income statement and the net receivable balance on the balance sheet?
No effect on either
The employee who records the entry to write off uncollectible accounts should
Not be the same person who receives collections from customers
An adjusting entry for interest earned is often needed when a company has
Notes receivable
When recording the adjusting entry for uncollectible accounts using the allowance method, customers subsidiary accounts are not directly reduced. The reason is
the amounts are estimates and no one Knows which particular customers not pay the company would lose track of which customers still owe money
