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Exam 7: Accounting for Receivables

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Question 21

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On May 31,Cray has $375,800 of accounts receivable.Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $14,250. 1.Prepare journal entries to record the following selected May transactions.The company uses the perpetual inventory system. a.Sold $415,200 of merchandise (that cost $249,000)to customers on credit. b.Received $465,800 cash in payment of accounts receivable. c.Wrote off $15,800 of uncollectible accounts receivable. d.In adjusting the accounts on May 31,its fiscal year-end,the company estimated that 4.0% of accounts receivable will be uncollectible. 2.Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet.

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Question 22

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All of the following statements regarding the allowance method are true except:

A) The allowance method estimates bad debts expense at the end of each accounting period and records it with an adjusting entry.
B) The Allowance for Doubtful Accounts is a contra asset account.
C) The Allowance for Doubtful Accounts is subtracted from Accounts Receivable to report receivables at realizable value.
D) The allowance method does not record bad debt expense until a customer's account receivable is determined to be uncollectible.
E) The write-off an uncollectible account does not impact the income statement.

F) D) and E)
G) A) and E)

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Question 23

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On May 31,a company had a balance in its accounts receivable of $103,200.Prepare journal entries to record the following transactions for June.Assume the company uses a perpetual inventory system.

The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1)computing the percent uncollectible from the total accounts receivable or (2)aging accounts receivable.

Honoring a note receivable indicates that the maker has:

The expense recognition principle,as applied to bad debts,requires:

Companies use two methods to account for uncollectible accounts,the direct write-off method and the allowance method.

A company borrowed $10,000 by signing a 180-day promissory note at 9%.The total interest due on the maturity date is: (Use 360 days a year.)

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: $\bold{\text{(Use 360 days a year.) }}$

A company uses the aging of accounts receivable method to estimate its bad debts expense.On December 31 of the current year an aging analysis of accounts receivable revealed the following: Required: a.Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet. b.Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement,assuming that the credit balance of the Allowance for Doubtful Accounts on January 1 of the current year was $41,000 and that accounts receivable written off during the current year totaled $43,200. c.Prepare the adjusting entry to record bad debts expense on December 31 of the current year. d.Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31.

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

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

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

Prudence Co.receives a $26,000,90-day,4% note receivable.What is the amount of interest that is due at maturity?

The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills.

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.

Federal laws prohibit the selling of accounts receivable to factors.

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?

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 promissory note received from a customer in exchange for an account receivable is recorded by the payee as: