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Exam 7: Accounting for Receivables

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Question 1

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Federal laws prohibit the selling of accounts receivables to factors.

A) True
B) False

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False

Question 2

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________ are amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.

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Installmen...

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Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded,and (2) reports accounts receivable at the estimated amount of cash to be collected?

The person that borrows money and signs a promissory note is called the maker.

Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

The percent of sales method of estimating bad debts focuses more on the realizable value of accounts receivable than on expense recognition.

Each December 31,Kimura Company ages its accounts receivable to determine the amount of its adjustment for bad debts.At the end of the current year,management estimated that $16,900 of the accounts receivable balances would be uncollectible.The Allowance for Doubtful Accounts account had a debit balance of $1,200 before any year-end adjustment for bad debts.Prepare the adjusting journal entry that Kimura Company should make on December 31,of the current year,to estimate bad debts expense.

On October 12 of the current year,a company determined that a customer's account receivable was uncollectible and that the account should be written off. -Assuming the direct write-off method is used to account for bad debts,what effect will this write-off have on the company's net income and total assets?

Mercks uses the perpetual inventory system,and accepts the Discovery credit card for credit card sales.Discovery charges Mercks a 3% fee,and all credit card receipts deposited are credited to the company account on the day of deposit.Prepare journal entries to record the following transaction. $\begin{array} { | l | l| } \hline\text { March } 11 & \begin{array} { l } \text { Sold merchandise for } \$ 4,500 \text { (that had cost } \$ 2,100 ) \text { and accepted the } \\\text { customer's Discovery card. }\end{array}\\\hline\end{array}$

Match each of the following terms with the appropriate definitions. -A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible.

Companies can report credit card expense as a reduction in net sales or as a selling expense.

Match each of the following terms with the appropriate definitions. -A measure of both the quality and liquidity of accounts receivable that indicates how often,on average,receivables are received and collected during the period.

A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee.The journal entry to record this transaction would include a:

At December 31 of the current year,a company reported the following: Total sales for the current year: $980,000 includes $160,000 in cash sales Accounts receivable balance at Dec.31,end of current year: $160,000 Allowance for Doubtful Accounts balance at January 1,beginning of current year: $7,300 credit Bad debts written off during the current year: $5,800. Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 5% of accounts receivable.

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year: $\begin{array} { l l l } &\text { Debit } & \text { Credit } \\\text { Cash sales } & & \$ 188,000\\\text { Credit sales } & & 275,000 \\\text { Accounts receivable } & \$ 76,000 &\\\text { Allowance for doubtful accounts } & &1,000 \\\end{array}$ Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of credit sales.

A company ages its accounts receivables to determine its end of period adjustment for bad debts.At the end of the current year,management estimated that $15,750 of the accounts receivable balance would be uncollectible. -Prior to any year-end adjustments,the Allowance for Doubtful Accounts had a credit balance of $375.What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Owens Company uses the direct write-off method of accounting for uncollectible accounts receivable.On December 6,Year 1,Owens sold $6,300 of merchandise to the Valley Company.On August 8,Year 2,after numerous attempts to collect the account,Owens determined that the account of the Valley Company was uncollectible. a.Prepare the journal entry required to record the transactions on August 8. b.Assuming that the $6,300 is material,explain how the direct write-off method violates the expense recognition (matching)principle in this case.

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. $\begin{array}{|l|r|r|}\hline\text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit }\\\hline\end{array}$ All sales are made on credit.Based on past experience,the company estimates 1% of credit sales to be uncollectible.What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off,the entry to record the write-off against the allowance account results in:

Jax Recording Studio purchased $7,800 in electronic components from Music World.Jax signed a 60-day,8% promissory note for $7,800.Music World's journal entry to record the collection on the maturity date is: