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Exam 7: Accounting for Receivables

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Question 31

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Bonita Company estimates uncollectible accounts using the allowance method at December 31.It prepared the following aging of receivables analysis. $\begin{array} { | l | r | r | r | r | r | r | } \hline & & & { \text { Days } } &{ \text { Past } } & \text { Due } & \\\hline & \text { Total } & \text { Current } & { 1 \text { to } 30 } & 31 \text { to } 60 & 61 \text { to } 90 & \text { Over } 90 \\\hline \text { Accounts receivable } & \$ 110,000 & 68,000 & 17,000 & 10,000 & 8,000 & 7,000 \\\hline \text { Percent uncollectible } & & 1 \% & 2 \% & 5 \% & 8 \% & 13 \% \\\hline\end{array}$ a.Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method. b.Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a.Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit. c.Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a.Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.

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Question 32

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Uniform Supply accepted a $4,800,90-day,10% note from Tracy Janitorial on October 17.If the note is dishonored,but Uniform Supply intends to continue collection efforts,what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)

A) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B) Debit Cash $4,920; credit Notes Receivable $4,920.
C) Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit Notes Receivable $4,800.
D) Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.
E) Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.

F) B) and D)
G) A) and B)

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Question 33

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When posting a dishonored note to a customer's account,an explanation is included so as not to misinterpret the debit as a sale on account.

The period of a note is the time from the note's (contract)date to its maturity date.

________ is the charge for using borrowed money until its due date.

Match each of the following terms with the appropriate definitions. -The accounting principle that requires financial statements (including the notes) to report all relevant information about operations and financial condition.

The materiality constraint,as applied to bad debts:

Match each of the following terms with the appropriate definitions. -A process of classifying accounts receivable by how long it is past its due date for the purpose of estimating the amount of uncollectible accounts.

The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

Match each of the following terms with the appropriate definitions. -The party to whom the promissory note is payable.

A company borrowed $10,000 by signing a six-month promissory note at 5% interest.The amount of interest to be paid at maturity is $25.

A company has net sales of $1,200,000 and average accounts receivable of $400,000.What is its accounts receivable turnover for the period?

The maturity date of a note receivable:

All of the following statements regarding recognition of receivables under U.S.GAAP and IFRS are true except:

The formula for computing interest on a note is: Principal of the note × Annual interest rate × Time expressed in fraction of year.

Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card.National Bank deducts a 3% service charge for sales on its credit cards.Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately.The journal entry to record the collection from the credit card company would be:

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: $\begin{array}{|l|r|r|}\hline\text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Credit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit }\\\hline\end{array}$ All sales are made on credit.Based on past experience,the company estimates 3.5% of ending account receivable to be uncollectible.What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 4% of outstanding receivables are uncollectible.The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Woods Co.uses a perpetual inventory system,and accepts the World Express credit card from its customers.World Express charges a 3.5% service fee and all credit card receipts deposited are credited to the company account on the day of deposit.On February 28,Woods sold $24,000 worth of merchandise to customers (that had cost $14,400)using the World Express charge card.Prepare the journal entries to record February 28 sales.

A company reports the following results in its financial statements: $\begin{array} { l l l l } & \text { Year } 3 & \text { Year } 2 & \text { Year } 1 \\\text { Net Sales } & \$ 2,500,000 & \$ 2,100,000 & \$ 1,900,000 \\\text { Accounts receivable, Ending Balance } & 172,000 & 167,000 & 165,000\end{array}$ Calculate the company accounts receivable turnover for Year 2 and Year 3.Compare these two results and give a possible explanation for any significant change.