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Exam 7: Accounting for Receivables

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Question 41

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A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

A) Payer.
B) Pledger.
C) Factor.
D) Payee.
E) Pledgee.

F) A) and D)
G) C) and D)

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Question 42

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The notes receivable account of a business should include both the notes that haven't matured and the dishonored notes.

A) True
B) False

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Question 43

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

If a company holds a large number of notes receivable it sometimes sets up a controlling account and a subsidiary ledger for notes.

The quality of receivables refers to the likelihood of collection without loss.

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: $\begin{array} { | l | r | l | } \hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit } \\\hline\end{array}$ 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 direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

When using the allowance method of accounting for uncollectible accounts, the entry to record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

Calculate the amount of interest that would be owed on a $18,000, 60-day, 8% note receivable at maturity.

The percent of sales method of estimating bad debts focuses more on the realizable value of accounts receivable than on matching.

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. $\begin{array} { | l | r | l | } \hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit } \\\hline\end{array}$ All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record the collection on account would be:

Failure by a promissory notes' maker to pay the amount due at maturity is known as:

A company has the following unadjusted account balances at December 31, of the current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end: $\begin{array}{|l|l|r|}\hline \text { Account Age } & \text { Balance } & \begin{array}{r}\text { Estimated } \\\text { Uncollectible } \\\text { Percentage }\end{array} \\\hline \text { Current (not yet due) } & \$ 96,000 & 1.0 \% \\\hline 1-30 \text { days past due } & 64,000 & 2.5 \% \\\hline 30-60 \text { days past due } & 16,000 & 11.0 \% \\\hline 61-90 \text { days past due } & 6,500 & 37.0 \% \\\hline \text { Over } 90 \text { days past due } & 3,200 & 70.0 \% \\\hline\text { Total }&\$185,700\\\hline\end{array}$ Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, of the current year, balance sheet. 2. Prepare the adjusting journal entry to record bad debts expense for the current year.

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

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

Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

Credit sales are recorded by crediting an Accounts Receivable.

Each December 31, Kimura Company ages its accounts receivable to determine the amount of its adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts account had a debit balance of $1,200 before any year-end adjustment for bad debts. Prepare the adjusting journal entry that Kimura Company should make on December 31, of the current year, to estimate bad debts expense.

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