Chapter nine sample test

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The interest on a $9,000, 6%, 1-year note receivable is

$540 $9,000 × .06 = $540

Which one of the following is not a primary problem associated with accounts receivable?

Depreciating accounts receivable

Able Company accepted a national credit card for a $5,000 purchase. The cost of the goods sold is $3,000. The credit card company charges a 2% fee. What is the impact of this transaction on net operating income?

Increase by $1,900 ($5,000 - $3,000) - ($5,000 × .02) = $1,900

If a department store fails to make the entry to accrue the finance charges due from customers,

interest revenue will be understated.

When customers make purchases with a national credit card, the retailer

is not involved in the collection process

Allowance for Doubtful Accounts on the balance sheet

is offset against accounts receivable.

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts

is relevant when using the percentage of receivables basis.

Two bases for estimating uncollectible accounts are:

percentage of receivables and percentage of sales

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the

percentage of receivables basis

A cash discount is usually granted to all of the following except

retail customers

Major advantages of credit cards to the retailer include all of the following except the

retailer receives more cash from the credit card issuer.

Short-term notes receivables

use the same estimations and computations as accounts receivable to determine cash realizable value.

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

when an account is determined to be uncollectible.

The interest on a $8,000, 5%, 90-day note receivable is

$100. $8,000 × .05 × 90/360 = $100

Bozemen Co., makes a credit card sale to a customer for $800. The credit card sale has a grace period of 30 days and then an interest charge of 1.8% per month is added to the balance. If the unpaid balance on the above sale is $650 at the end of the grace period, the interest charge is

$11.70 $650 × .018 = $11.70

In reviewing the accounts receivable, the cash realizable value is $14,000 before the write-off of a $1,800 account. What is the cash realizable value after the write-off?

$14,000

In 2016, Yale Company had credit sales of $1,050,000 and granted sales discounts of $25,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $26,400. During 2016, $43,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2016?

$14,150 $26,400 - $43,000 + [($1,050,000 - $25,000) × .03] = $14,150

Kerr Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $2,100,000 and $20,000 (Cr.), respectively. An aging of accounts receivable indicated that $170,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is

$150,000 $170,000 - $20,000 = $150,000

Maine Corporation's unadjusted trial balance includes the following balances (assume normal balances): Accounts Receivable $850,000 Allowance for Doubtful Accounts 18,000 Bad debts are estimated to be 5% of outstanding receivables. What amount of bad debt expense will the company record?

$24,500 ($850,000 × .05) - $18,000 = $24,500

Using the percentage-of-receivables method for recording bad debts expense, estimated uncollectible accounts are $23,000. If the balance of the Allowance for Doubtful Accounts is $2,000 debit before adjustment, what is the amount of bad debt expense for that period?

$25,000 $23,000 + $2,000 = $25,000

In 2016, Warehouse 13 had net credit sales of $850,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2016, $27,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $160,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2016?

$25,000 ($160,000 × .10) + ($27,000 - $18,000) = $25,000

A company has net credit sales of $750,000 for the year and it estimates that uncollectible accounts will be 3% of sales. If Allowance for Doubtful Accounts has a credit balance of $3,000 prior to adjustment, its balance after adjustment will be a credit of

$25,500 ($750,000 × .03) + $3,000 = $25,500

During 2016, Belfour Inc. had sales on account of $189,000, cash sales of $78,000, and collections on account of $162,000. In addition, they collected $1,275 which had been written off as uncollectible in 2015. As a result of these transactions, the change in the accounts receivable balance indicates a

$27,000 increase.

Homeplate sells softball equipment. On November 14, they shipped $4,000 worth of softball uniforms to Bonita Middle School, terms 2/10, n/30. On November 21, they received an order from Vista High School for $1,500 worth of custom printed bats to be produced in December. On November 30, Bonita Middle School returned $200 of defective merchandise. Homeplate has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30?

$3,800 $4,000 - $200 = $3,800

Using the following information: 12/31/15 Accounts receivable $525,000 Allowance (40,000) Cash realizable value $485,000 During 2016, sales on account were $145,000 and collections on account were $100,000. Also during 2016, the company wrote off $5,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $45,000. The change in the cash realizable value from the balance at 12/31/15 to 12/31/16 was a

$35,000 increase

Jill Company provides for bad debt expense at the rate of 3% of credit sales. The following data are available for 2016: Allowance for doubtful accounts, 1/1/16 (Cr.) $ 15,000 Accounts written off as uncollectible during 2016 9,000 Credit sales in 2016 1,000,000 The Allowance for Doubtful Accounts balance at December 31, 2016, should be

$36,000 ($1,000,000 × .03) + ($15,000 - $9,000) = $36,000

On November 1, Tacoma Company received a $4,000, 5%, three-month note receivable. The cash to be received by Tacoma Company when the note becomes due is:

$4,050 $4,000 + ($4,000 × .05 × 3/12) = $4,050

In 2016, Winslow Company had net credit sales of $1,250,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $25,000. During 2016, $32,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $360,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2016?

$43,000 ($360,000 × .10) + ($32,000 - $25,000) = $43,000

Jere Retailers accepted $57,000 of Maxibank Visa credit card charges for merchandise sold on July 1. Maxibank charges 3% for its credit card use. The entry to record this transaction by Jere Retailers will include a credit to Sales Revenue of $57,000 and a debit(s) to

$55,290 and Service Charge Expense $1,710. $57,000 - ($57,000 × .03) = $55,290

The maturity value of a $6,000, 5%, 60-day note receivable dated February 10th is

$6,050 $6,000 + ($6,000 × .05 × 60/360) = $6,050

Woulk Company has a debit balance of $8,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Woulk estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:

$68,000. $60,000 + $8,000 = $68,000

An analysis and aging of the accounts receivable of Downs Company at December 31 revealed the following data: Accounts Receivable $80,000 Allowance for Doubtful Accounts per books before adjustment (Cr.) 50,000 Amounts expected to become uncollectible 53000 The cash realizable value of the accounts receivable at December 31, after adjustment, is:

$747,000 $800,000 - $53,000 = $747,000

On February 1, Carson Company received a $9,000, 4%, four-month note receivable. The cash to be received by Carson Company when the note becomes due is

$9,120. $9,000 + ($9,000 × .04 × 4/12) = $9,120

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $12,000. If the balance of the Allowance for Doubtful Accounts is $2,500 credit before adjustment, what is the amount of bad debt expense for that period?

$9,500 $12,000 - $2,500 = $9,500

On January 15, 2016, Jaymes Company received a two-month, 4%, $7,000 note from Peter Long for the settlement of his open account. The entry by Jaymes Company on March 15, 2016 if Long dishonors the note and collection is expected is:

. Accounts Receivable—P. Long 7,047 Notes Receivable 7,000 Interest Revenue 47

Valli Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $700,000 and credit sales are $2,500,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Valli Company make to record the bad debts expense?

. Bad Debts Expense 25,000 Allowance for Doubtful Accounts 25,000

The average collection period is computed by dividing

365 days by the accounts receivable turnover.

The financial statements of Daye Manufacturing Company report net sales of $720,000 and accounts receivable of $70,000 and $90,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

40.6 $720,000 ÷ $80,000 = 9; 365 ÷ 9 = 40.6

The financial statements of Georgi Manufacturing Company report net sales of $595,000 and accounts receivable of $80,000 and $60,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

42.9 days $595,000 ÷ $70,000 = 8.5; 365 ÷ 8.5 = 42.9

The financial statements of Daye Manufacturing Company report net sales of $720,000 and accounts receivable of $70,000 and $90,000 at the beginning and end of the year, respectively. What is the accounts receivable turnover for Daye?

9 times $720,000 ÷ [($70,000 + $90,000) ÷ 2] = 9

The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to

Accounts Receivable

A customer charges a treadmill at Sports Equipment Shop. The price is $4,000 and the financing charge is 8% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Sports Equipment Shop to record the finance charge are

Accounts Receivable Interest Revenue

On March 1, 2016, Mike Dials purchased a suit at Lenny's Fine Apparel Store. The suit cost $800 and Mike used his Lenny's credit card. Lenny's charges 3% per month interest if payment on credit charges is not made within 30 days. On April 30, 2016, Mike had not yet made his payment. What entry should Lenny's make on April 30th?

Accounts Receivable 24 Interest Revenue 24 $800 × .03 = $24

On February 1, 2016, Fresno Company sells merchandise on account to Aiken Company for $7,800. The entry to record this transaction by Fresno Company is

Accounts Receivable 7,800 Sales Revenue 7,800

When an account becomes uncollectible and must be written off,

Accounts Receivable should be credited.

Which of the following are also called trade receivables?

Accounts receivable

Which receivables accounting and reporting issue is essentially the same for IFRS and GAAP?

All of these are essentially the same for IFRS and GAAP.

Which receivables accounting and reporting issue is not essentially the same for IFRS and GAAP?

All of these are essentially the same for IFRS and GAAP.

Writing off an uncollectible account under the allowance method requires a debit to

Allowance for Doubtful Accounts

A 90-day note dated May 18 has a maturity date of

August 16. 90 - (31 - 18) - 30 - 31 = 16

Which use the term impairment to indicate that a receivable may not be collected?

Both IFRS and GAAP

Sandle Company lends Roseenn Company $9,000 on April 1, accepting a four-month, 4% interest note. Sandle Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Interest Receivable 30 Interest Revenue 30 $9,000 × .04 × 1/12 = $30

A 30-day note dated June 13 has a maturity date of

July 13

Leek Company receives a $12,000, 3-month, 5% promissory note from Rey Company in settlement of an open accounts receivable. What entry will Leek Company make upon receiving the note?

Notes Receivable 12,000 Accounts Receivable—Rey Company 12,000

Which of the following receivables would not be classified as an "other receivable"?

Notes receivable

Which of the following statements concerning receivables is incorrect?

Notes receivable are often listed last under receivables

Which of the following is not true regarding a promissory note?

Promissory notes may not be transferred to another party by endorsement

Which of the following would be considered as an unlikely occurrence?

Retailer offers a cash discount to a customer.

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables?

Selling expenses will increase each time accounts are sold

In recording the sale of accounts receivable, the commission charged by a factor is recorded as

Service Charge Expense.

Which of the following practices by a credit card company results in lower interest charges to the cardholder?

The card company allows a grace period before interest is accrued.

Which of the following would require a compound journal entry?

To record collection of accounts receivable when a cash discount is taken

An alternative name for Bad Debt Expense is

Uncollectible Accounts Expense

On October 1, 2016, Beane Company sells (factors) $600,000 of receivables to Milago Factors, Inc. Milago assesses a service charge of 4% of the amount of receivables sold. The journal entry to record the sale by Beane will include

a debit of $24,000 to Service Charge Expense

Under the direct write-off method of accounting for uncollectible accounts

a specific account receivable is decreased for the actual amount of bad debt at the time of write-off

The average collection period for accounts receivable is computed by dividing 365 days by

accounts receivable turnover.

Under the allowance method, writing off an uncollectible account

affects only balance sheet accounts

Bad Debt Expense is reported on the income statement as

an operating expense.

The basic issues in accounting for notes receivable include each of the following except

analyzing notes receivable.

The allowance method of accounting for uncollectible accounts is required if

bad debts are significant in amount

Which board(s) has(have) faced bitter opposition when working to implement fair value measurement for financial instruments?

both FASB and IASB

Which board(s) has(have) worked to implement fair value measurement for financial instruments?

both FASB and IASB.

A note receivable is a negotiable instrument which

can be transferred to another party by endorsement.

Short-term notes receivable are reported at

cash (net) realizable value.

The net amount expected to be received in cash from receivables is termed the

cash realizable value

The percentage of receivables basis for estimating uncollectible accounts emphasizes

cash realizable value

When an account is written off using the allowance method, the

cash realizable value of total accounts receivable will stay the same

Retailers generally consider sales from the use of national credit card sales as a

cash sale

The retailer considers Visa and MasterCard sales as

cash sales

On January 15, 2016, Jaymes Company received a two-month, 4%, $7,000 note from Peter Long for the settlement of his open account. The entry by Jaymes Company on January 15, 2016 would include a:

debit of $7,000 to Notes Receivable

An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $700 debit balance, the adjustment to record bad debts for the period will require a

debit to Bad Debt Expense for $4,700 $4,000 + $700 = $4,700

An aging of a company's accounts receivable indicates that $6,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record bad debts for the period will require a

debit to Bad Debt Expense for $5,200 $6,000 - $800 = $5,200

When an account is written off using the allowance method, accounts receivable

decreases and the allowance account decreases

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

does not affect income in the period it is collected

The direct write-off method of accounting for bad debts

does not require estimates of bad debt losses.

The percentage of sales basis of estimating expected uncollectibles

emphasizes the matching of expenses with revenues.

If a company fails to record estimated bad debts expense,

expenses are understated

Notes receivable are recognized in the accounts at

face value

When a note is accepted to settle an open account, Notes Receivable is debited for the note's

face value

Receivables might be sold to

generate cash quickly.

IFRS

implies that receivables with different characteristics should be reported separately

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded

in the same year as the credit sale

A debit balance in the Allowance for Doubtful Accounts

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

The two key parties to a promissory note are the

maker and the payee

When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when

management estimates the amount of uncollectibles

When a note receivable is honored, Cash is debited for the note's

maturity value.

A promissory note

may be used to settle an accounts receivable

The receivable that is usually evidenced by a formal instrument of credit is a(n)

note receivable

Claims for which formal instruments of credit are issued as proof of the debt are

notes receivable

Interest is usually associated with

notes receivable

Three accounting issues associated with accounts receivable are

recognizing, valuing, and disposing

IFRS and GAAP accounting are the same for each of the following except for the

recording of a factoring transaction

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)

selling expense.

The direct write-off method

shows only actual losses from uncollectible accounts receivable

The best managed companies will have

some accounts that will prove to be uncollectible

The face value of a note refers to the amount

that is identified on the formal instrument of credit.

Under the allowance method of accounting for uncollectible accounts,

the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

If an account is collected after having been previously written off,

there will be both a debit and a credit to accounts receivable.

Notes or accounts receivables that result from sales transactions are often called

trade receivables

The interest rate specified on any note is for a

year


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