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Exam 7: Accounting for Receivables

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Question 121

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A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 6% of outstanding receivables are uncollectible. -The current debit balance (before adjustments)in the allowance for doubtful accounts is $1,200.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

A) True
B) False

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Question 122

Multiple Choice

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Match each of the following terms with the appropriate definitions. -The party who signs a note and promises to pay it at maturity.

A) Expense recognition (matching) principle
B) Realizable value
C) Interest
D) Bad debts
E) Accounts receivable
F) Aging of accounts receivable
G) Allowance for doubtful accounts
H) Promissory note
I) Payee of a note
J) Maker of a note

K) A) and E)
L) G) and J)

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Question 123

Multiple Choice

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A company uses the percent of sales method to determine its bad debts expense.At the end of the current year,the company's unadjusted trial balance reported the following selected amounts: $\begin{array} { l l } \text { Accounts receivable } & \$ 375,000 \text { debit } \\\text { Allowance for uncollectible accounts } & 500 \text { debit } \\\text { Net Sales } & 800,000 \text { credit }\end{array}$ All sales are made on credit.Based on past experience,the company estimates that 0.6% of net credit sales are uncollectible.What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable.During the current year,the following transactions occurred: Sept 7 Links Company determined that the $\$ 8,000$ account receivable of the Rainier Company was uncollectible, and wrote it off. Oct 15 Links Company detemined that the $\$ 3,500$ account receivable of the Olympic Company was uncollectible and wrote it off. Nov 9 Rainier Company paid $\$ 6,000$ of the amount owed to the Links Company.Links Company does not expect further collections from the Rainier Company. $\text { Dec } 31 \text { Links Company estimates that } 1 \% \text { of its } \$ 1,900,000 \text { of credit }$ sales would be uncollectible. 1.Prepare the general journal entries to record these transactions. 2.If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year,determine the balance of the allowance for uncollectible accounts at December 31 of the current year.Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year.

The quality of receivables refers to:

Explain the options a company may use to convert its receivables to cash before they are due.

The use of the direct write-off method is allowed under the materiality constraint.

Match each of the following terms with the appropriate definitions. -The charge a borrower pays for using money borrowed.

Allowance for Doubtful Accounts is a contra asset; its balance is added to Accounts receivable.

No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

When a note receivable is dishonored,it reverts to an account receivable.

The accounts receivable turnover is calculated by dividing ________ by ________.

The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1)computing the percent uncollectible from the total accounts receivable or (2)aging accounts receivable.

On February 1,a customer's account balance of $2,300 was deemed to be uncollectible.What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

A company uses the aging of accounts receivable method to estimate its bad debts expense.On December 31 of the current year an aging analysis of accounts receivable revealed the following: $\begin{array} { l l l } & & \begin{array} { l } \text { Estimated } \\\text { Uncollectible }\end{array} \\\text { Account Age } & \text { Balance } & \text { Percentage } \\\hline\text { Current (not yet due) } & \$ 620,000 & 0.5 \% \\1 - 30 \text { days past due } & 270,000 & 2.0 \% \\\text { 30-60 days past due } & 145,000 & 8.0 \% \\61 - 90 \text { days past due } & 55,000 & 20.0 \% \\90 - 120 \text { days past due } & 32,000 & 50.0 \% \\\text { Over 120 days past due } & \underline { 18,000 } & 70.0 \% \\\text { Total } & \$ 1,140,000 &\end{array}$ Required: a.Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet. b.Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement,assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was $41,000 and that accounts receivable written off during the current year totaled $43,200. c.Prepare the adjusting entry to record bad debts expense on December 31 of the current year. d.Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31.

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

Jasper makes a $25,000,90-day,7% cash loan to Clayborn Co.Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)