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Exam 7: Accounts and Notes Receivable

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Question 91

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An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:

A) Allowance method of accounting for bad debts.
B) Aging of notes receivable.
C) Adjustment method for uncollectible debts.
D) Direct write-off method of accounting for bad debts.
E) Cash basis method of accounting for bad debts.

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

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Question 92

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Installment accounts receivable is another name for aging of accounts receivable.

A) True
B) False

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Question 93

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A company has net sales of $870,000 and average accounts receivable of $174,000.What is its accounts receivable turnover for the period?

Timmons Company had a January 1 credit balance in its Allowance for Doubtful Accounts of $7,000 for the current year.The following transactions and events affected the Allowance for Doubtful Accounts during the current year: $\begin{array}{|l|l|}\hline\text { Apr. 15 } & \text { Bard's account receivable of } \$ 5,700 \text { was deemed uncollectible. } \\\hline \text { July 1 } & \begin{array}{l}\text { Drake paid the full amount of a previously written-off account receivable. This } \\\text { receivable of } \$ 2,300 \text { had been written off in the prior year. }\end{array} \\\hline \text { Dec. 31 } & \text { Bad debts expense of } \$ 7,500 \text { was recorded. }\\\hline\end{array}$ What amount should appear in the allowance for doubtful accounts in the December 31 balance sheet for the current year?

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

Acme Company has an agreement with a major credit card company that calls for cash to be received immediately upon deposit of Acme customers' credit card sales receipts.The credit card company receives 3.5% of card sales as its fee.If Acme has $2,000 in credit card sales,which of the following statements are true?

The process of using accounts receivable as security for a loan is known as factoring accounts receivable.

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).This 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: $\begin{array}{|l|c|c|} \hline &&\text {Estimated}\\ &&\text {Uncollectible}\\ \hline \text { Account Age } & \text { Balance } & \text { Percentage}\\\hline \text { Current (notyet due) } &\$96,000&1.0\%\\\hline \text { 1 - 30 days past due} &64,000&3.5\\ \hline\text { 31-60 days past due} &16,000&12.0\\\hline \text { 61-90 } &6,500&42.0\\\hline \text { Over 90 days past due } &3,200&67.0\\ \hline \text { Total } &\$185,700\\ \hline \end{array}$ a.Calculate the amount of the allowance for doubtful accounts that should appear on the December 31 of the current year balance sheet. b Prepare the adjusting journal entry to record bad debts expense for the current year.

Each December 31,Davis 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 $3,200 before any year-end adjustment for bad debts.Prepare the adjusting journal entry that Davis Company should make on December 31 of the current year to estimate bad debts expense.

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