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Exam 7: Reporting and Analyzing Receivables

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Question 101

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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:

A) $3,600
B) $3,568
C) $3,632
D) $2,800
E) $4,400

F) A) and C)
G) None of the above

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Question 102

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After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

A) True
B) False

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Question 103

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Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

Converting receivables to cash before they are due is usually done by either (1) _______________________ or (2) ________________________________.

A supplementary record created to maintain a separate account for each customer is called the ________________________.

The matching principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

The quality of receivables refers to the likelihood of collection without loss.

The person to whom a note is payable is known as the ______________.

A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is.

Reporting the details of notes is consistent with which accounting principle that requires financial statements (including footnotes) to report all relevant information?

On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $14,250. 1. Prepare journal entries to record the following selected May transactions. The company uses the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet. a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit. b. Received $465,800 cash in payment of accounts receivable. c. Wrote off $15,800 of uncollectible accounts receivable. d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

Jordan Co. uses the allowance method of accounting for uncollectible accounts. Jordan Co. accepted a $5,000, 12%, 90-day note dated May 16, from Beckam Co. in exchange for its past-due account receivable. Make the necessary general journal entries for Jordan Co. on May 16 and the August 14 maturity date, assuming that the: a. Note is held until maturity and collected in full at that time. b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.

A ____________________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.

Jaspreet Industries accepts a $5,000, 90-day, 5% note receivable from a customer on an overdue Accounts Receivable. The amount due upon maturity is $5,062.50. Interest = $5,000 × .05 × 90/360 = $62.50 Maturity value = $5,000 + 62.50 = $5,062.50

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 matching principle in this case.

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: 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?

Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is:

Companies follow both the matching principle and the materiality constraint when applying the direct write-off method.

The maturity date of a note receivable: