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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 21

Multiple Choice

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The practice of reporting the net realizable value of receivables in the financial statements is commonly called:

A) the cash flow method of accounting for uncollectible accounts.
B) the direct write-off method of accounting for uncollectible accounts.
C) the allowance method of accounting for uncollectible accounts.
D) the cash flow method of accounting for uncollectible accounts and the direct write-off method of accounting for uncollectible accounts are correct.

E) C) and D)
F) A) and B)

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Question 22

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Interest and notes receivable are reported on the balance sheet in the order of liquidity.

A) True
B) False

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Question 23

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On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales. The entry to recognize the write-off of an uncollectible account will

The accounting principle that requires a company to provide financial statement users with information about the accounting methods it has selected (including inventory cost flow methods) is

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ Potter Co. used the allowance method to account for uncollectible accounts expense. On June 20, 2014, Potter wrote off an uncollectible account in the amount of $8,000. Show the effect of this write-off.

Porter Company experienced the following events during 2014: 1. Recognized $8,400 of service revenue on account 2. Wrote off as uncollectible an account receivable in the amount of $27 3. Prepared adjusting entry to recognize uncollectible accounts expense. Porter expected that 1% of service revenue would not be collected Required: Show how each of these events would affect the financial statements model, below. Include dollar amounts of increases and decreases. When an account is not affected by a particular event, indicate with NA.

An aging of accounts receivable may be used to estimate the amount of accounts receivable that a company is likely not to collect.

An aging of Sernett Company's accounts receivable at the end of 2014 yielded the following information about the lengths of time that the receivables had been outstanding: The balance in the Allowance for Doubtful Accounts before adjustments was $310. Based on the preceding information, a) What should be the balance in the Allowance for Doubtful Accounts after the adjusting entry? b) What is the amount of uncollectible accounts expense that should be reported on the income statement?

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the 2014 income statement will be

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

In a period of rising prices, which inventory cost flow method will produce the lowest amount of cost of goods sold?

Accruing interest on a note receivable at the end of the fiscal year is an asset source transaction.

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. Related to this note receivable, what amount of interest income would Siebens report on its 2014 income statement?

On January 1, 2014, Howe Company's Accounts Receivable balance was $10,000 and the balance in the Allowance for Doubtful Accounts was $500. On January 5, 2014, a $200 uncollectible account was written-off as uncollectible. Assuming that no other transactions related to accounts receivable had occurred, the net realizable value of accounts receivable immediately after the write-off was

A company's year-end adjusting entry to recognize uncollectible accounts expense will

What is meant by the term "net realizable value" for accounts receivable?

The longer an account receivable has been outstanding, the less likely it is to be collected.

Indicate whether each of the following statements is true or false. 1. Most companies do not expect to receive the full face value of their receivables 2. Use of the percent of receivables method of estimating uncollectible accounts expense may include an aging of accounts receivable 3. The percent revenue method of estimating uncollectible accounts expense is sometimes called an income statement approach 4. The estimated amount of uncollectible accounts is called the net realizable value 5. The practice of reporting the net realizable value of receivables is commonly called the allowance method of accounting for uncollectible accounts

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. Related to this note receivable, what amount of interest income would Siebens report on its 2015 income statement?

What are some of the costs a business incurs in making credit sales to customers? What is the primary benefit of making credit sales?