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Exam 7: Reporting and Analyzing Receivables

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Question 31

True/False

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No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

A) True
B) False

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Question 32

Multiple Choice

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A company receives a 10%,120-day note for $1,500.The total interest due on the maturity date is: (Use 360 days a year.)

A) $50.00.
B) $150.00.
C) $75.00.
D) $37.50.
E) $87.50.

F) B) and C)
G) All of the above

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Question 33

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The expense recognition (matching)principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.

On July 9,Mifflin Company receives an $8,500,90-day,8% note from customer Payton Summers as payment on account.Compute the amount due at maturity for the note.(Use 360 days a year.)

________ is the charge for using borrowed money until its due date.

The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)

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

Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security.Which of the following is true regarding this transaction:

Notes receivable are classified as current liabilities regardless of the time to maturity.

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:

A company that uses the percent of sales to account for its bad debts had credit sales of $740,000 in Year 1,including a $720 sale to Marshall Fresh.On December 31,Year 1,the company estimated its bad debts at 1.5% of its credit sales.On June 1,Year 2,the company wrote off,as uncollectible,the $720 account of Marshall Fresh.On December 21,Year 2,Marshall Fresh unexpectedly paid his account in full.Prepare the necessary journal entries: (a)On December 31,Year 1,to reflect the estimate of bad debts expense. (b)On June 1,Year 2,to write off the bad debt. (c)On December 21,Year 2,to record the unexpected collection.

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?

Accounts receivable turnover shows how well management is doing in granting credit to customers.

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.

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?

The ________ method of computing uncollectible accounts uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

The Branson Company uses the percent of sales method of accounting for uncollectible accounts receivable.During the current year,the following transactions occurred: Prepare the general journal entries to record these transactions.

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

On July 9,Mifflin Company receives a $8,500,90-day,8% note from customer Payton Summers as payment on account.Compute the maturity date for the note.

Jasper makes a $25,000,90-day,7% cash loan to Clayborn Co.The amount of interest that Jasper will collect on the loan is: (Use 360 days a year.)