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Exam 9: Accounting for Receivables

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Question 51

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The quality of receivables refers to:

A) The likelihood of collection without loss.
B) Sales turnover.
C) The creditworthiness of sellers.
D) The speed of collection.
E) The interest rate.

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

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Question 52

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The person that borrows money and signs a promissory note is called the maker.

A) True
B) False

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Question 53

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Winkler Company borrows $85,000 and pledges its receivables as security. The journal entry to record this transaction would be:

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

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.

On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end? (Use 360 days a year.)

Separate accounts receivable information for each customer is important because it reveals all of the following except:

When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: $\begin{array}{ll}\text { Accounts receivable } & \$ 375,000 \text { debit } \\\text { Allowance for unco llectible accounts } & 500 \text { credit } \\\text { Net Sales } & 800,000 \text { credit }\end{array}$ All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB) , which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

When a note receivable is dishonored, it reverts to an account receivable.

What is the accounts receivable turnover ratio? How is it calculated and how is it used to assess financial condition?

On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer settle an account. What entry should be made on the November 1 to record the acceptance of the note?

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable } & 16,125 & \\\hline \text { Allowance for Doubtful Accounts } & & 16,125 \\\hline\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable } & 15,750 & \\\hline \text { Bad Debts Expense } & 375 & \\\hline \text { Sales } & & 16,125 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Bad Debts Expense } & 16,125 & \\\hline \text { Allowance for Doubtful Accounts } & & 16,125 \\\hline\end{array}$ D) $\begin{array}{|l|l|l|}\hline \text { Bad Debts Expense } & 15,375 & \\\hline \text { Allowance for Doubtful Accounts } & & 15,375 \\\hline\end{array}$ E) $\begin{array}{|l|r|l|}\hline \text { Bad Debts Expense } & 15,750 & \\\hline \text { Allowance for Doubtful Accounts } & & 15,750 \\\hline\end{array}$

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

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: $\begin{array} { | l | r | l | } \hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Credit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit } \\\hline\end{array}$ 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?

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

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

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments)in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.