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Exam 7: Reporting and Analyzing Receivables

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Question 1

Multiple Choice

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A promissory note:

A) Is a short-term investment for the maker
B) Is a written promise to pay a specified amount of money at a certain date
C) Is a liability to the payee
D) Is another name for an installment receivable
E) Cannot be used in payment of an account receivable

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

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Question 2

Essay

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Tecom accepts the NOVA credit card for credit card sales.Tecom sends credit card receipts to NOVA on a weekly basis.NOVA charges Tecom a 2% fee.Tecom usually receives payment from NOVA within a week.Prepare entries in general journal form to record the following transactions of Tecom involving the NOVA credit card. $\begin{array}{|l|l|}\hline\text { March } 11 & \begin{array}{l}\text { Sold merchandise for } \$ 4,500 \text { to customers who use the NOVA credit card and } \\\text { deposited the credit card receipts. }\end{array} \\\hline \text { March 20 } & \begin{array}{l}\text { Received cash proceeds less the service charge for the March } 14 \text { deposit to } \\\text { NOVA }\end{array}\\\hline\end{array}$

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\[\begin{array} { | l | l | r | r | } \hline \text { March 11 } & \text { Accounts Receivable-NOVA } & 4,410 & \\ \hline & \text { Credit Card Experise } & 90 & \\ \hline & \text { Sales } & & 4,500 \\ \hline \text { March } 20 & \text { Cash } & 4,410 & \\ \hline & \text { Accounts Receivable - NOVA } & & 4,410 \\ \hline \end{array}\]

Question 3

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A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date.

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

The _______________________ method uses both past and current receivables to estimate the allowance amount and assumes that the longer an amount is past due,the more likely it is to be uncollectible.

A company received a $1,000,90-day,10% note receivable.The journal entry to record receipt of the note would include a debit to Notes Receivable.

When using the allowance method of accounting for uncollectible accounts,the entry to write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable - Harold.

An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:

On August 1,2010,Ace Corporation accepted a note receivable in place of an outstanding accounts receivable in the amount of $123,965.The note is due in 90 days and has an interest rate of 8%.What would be the total amount collected at the maturity date?

When a company has a high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

If a 90-day note receivable is dated June 12,what is the maturity date of the note?

Writing off an uncollectible account receivable when the allowance method of accounting for uncollectible accounts is used,a company should debit _______________________ and credit accounts receivable.

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

The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible.

Match each of the following terms with the appropriate definitions.

____________________ is the charge for using (not paying)money until a later date.

Dell reported net sales of $8,739 million and average accounts receivable of $864 million.Its accounts receivable turnover is:

The following information is from the annual financial statements of Nancy Company. $\begin{array} { l r r r } & 2010 & 2009 & 2008 \\\text { Net Sales } & \$ 3 0 7 , 0 0 0 & \$ 2 3 8 , 0 0 0 & \$ 2 8 5 , 0 0 0 \\\text { Accounts Receivable, net (year-end) } & 47,900 & 45,700 & 42,400\end{array}$ What is the accounts receivable turnover ratio for 2010?

How does John Earle of Johnny Cupcakes,Inc.,view decisions involving sales on credit?

The maturity date of a note refers to the date the note is signed.