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Exam 9: Accounting for Receivables

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Question 61

True/False

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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) True
B) False

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Question 62

Multiple Choice

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Honoring a note receivable indicates that the maker has:

A) Paid in full.
B) Notarized.
C) Guaranteed.
D) Cosigned.
E) Signed.

F) B) and E)
G) C) and E)

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Question 63

Multiple Choice

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Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

Describe the differences in how the direct write-off method and the allowance method are applied in accounting for uncollectible accounts receivables.

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:

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

A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

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

A company had net sales of $550,000 and an average accounts receivable of $110,000. Its accounts receivable turnover equals 5.0.

Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

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?

The expense recognition (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.

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 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?

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

For legal reasons, it is not advisable to accept a note receivable in exchange for an overdue account receivable.

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

BizCom's customer, Redding, paid off an $8,300 balance on its account receivable. BizCom should record the transaction as a debit to Accounts Receivable-Redding and a credit to Cash.

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.