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Exam 7: Reporting and Analyzing Receivables

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Question 1

Short Answer

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

Correct Answer

verified

payee

Question 2

Multiple Choice

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Sellers allow customers to use credit cards for all of the following reasons except:

A) To be able to charge more due to fees and interest.
B) To lessen the risk of extending credit to customers who cannot pay.
C) To speed up receipt of cash from the credit sale.
D) To increase total sales volume.
E) To avoid having to evaluate a customer's credit standing for each sale.

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

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Question 3

True/False

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A note that the maker is unable or refuses to pay at maturity is called a dishonored note.

On December 31,of the current year,Spectrum Company's unadjusted trial balance revealed the following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on credit),and Allowance for Doubtful Accounts of $1,600 (credit balance). Prepare the adjusting journal entry to record Spectrum's estimate for bad debts assuming: 1.6.0% of the accounts receivable balance is assumed to be uncollectible. 2.Bad debts expense is estimated to be 1.5% of credit sales. 3.Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the balance sheet after adjustment assuming the percentage of sales method is used. 4.Prepare the entry to write off a $1,500 account receivable on January 1 of the next year. 5.Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the balance sheet immediately after writing off the account in part 4 assuming the percentage of sales method is used.

What are some of the considerations management should make when assessing the accounts receivable turnover ratio?

A promissory note:

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

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 allowance method is used to account for bad debts,what effect will this write-off have on the company's net income and total assets?

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

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

A company borrowed $16,000 by signing a 4-month promissory note at 12%.The amount of interest to be paid at maturity is $640.

A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee.The journal entry to record this transaction would include a debit to Cash of $30,000,a debit to Factoring Fee Expense of $600,and credit to Accounts Receivable of $30,600.

The Tulip Company uses the percent of receivables method of accounting for uncollectible accounts receivable,and a perpetual inventory system.As of January 1,its net accounts receivable totaled $485,000 (Accounts Receivable $500,000 less a $15,000 Allowance for Doubtful Accounts).During the current year,the following transactions occurred.

The allowance method of accounting for bad debts requires an estimate of bad debt expense at the end of each accounting period.The two common methods to determine the estimate amount are the percent of sales method and the percent of receivables method.Explain the basic differences between the two methods.

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: 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.

Gemstone Products allows customers to use bank credit cards to charge purchases.The bank used by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all credit card receipts deposited are credited to the company account on the day of deposit.Assume that on January 18,Gemstone Products sold and deposited $18,000 worth of bank credit card receipts.Prepare the general journal entry to record this transaction.

A company allows its customers to use bank credit cards to charge purchases.When customers use the credit cards,the net amount is deposited in the company's checking account,less a 2.5% service charge.Assume that on April 13,the company sold $20,000 worth of merchandise to customers who used credit cards.Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

Explain how to record the receipt (acceptance)of a note receivable.

If a credit card sale is made,the seller debits Cash and credits Sales for the same amount.