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Exam 7: Accounting for Receivables

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Question 41

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Making a loan to another party is considered an investing activity on the statement of cash flows.

A) True
B) False

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Question 42

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If a company uses the percent of receivables method to estimate uncollectible accounts,the company will first determine the required ending balance in Allowance for Doubtful Accounts;the Uncollectible Accounts Expense will be the difference between that amount and the unadjusted credit balance in the Allowance for Doubtful Accounts.

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B) False

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Question 43

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When a company receives payment from a customer whose account was previously written off,the account is reinstated and the net realizable value of Accounts Receivable increases.

Which of the following is not considered a "cost" of extending credit to customers?

The balance in Accounts Receivable at the beginning of the year amounted to $16,000.During the year,$64,000 of credit sales were made to customers.If the ending balance in Accounts Receivable amounted to $10,000,and uncollectible accounts expense amounted to $4,000,what is the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement?

[The following information applies to the questions displayed below.] The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. -What is the amount of uncollectible accounts expense that will be recognized on the Year 1 income statement?

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1,Year 1.The one-year note carried a 6% rate of interest.What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2,respectively?

The year-end adjusting entry to accrue interest on a note receivable is an asset source transaction.

The net realizable value of accounts receivable is the amount of receivables a company expects to collect.

If the allowance method is used,how do the two entries recorded in connection with the recovery of an uncollectible account affect the elements of the financial statements? (Hint: Consider the effect of both entries taken together.)

Willis Company had $200,000 in credit sales for Year 1,and it estimated that 2% of the credit sales would not be collected.The balance in Accounts Receivable at the end of the year was $38,000.Willis had never used the allowance method to account for its receivables until Year 1.The net realizable value of its accounts receivable at the end of the year was $34,000.

[The following information applies to the questions displayed below.] On January 1, Year 2 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. -What is the amount of uncollectible accounts expense recognized on the Year 2 income statement?

The operating cycle is the average time that a company spends acquiring inventory to sell.

Alberta Company accepts a credit card as payment for $450 of services provided for the customer.The credit card company charges a 4% fee for handling the transaction.How does this this transaction affect the elements of the financial statements?

Other things being equal,the longer a company's operating cycle,the higher the company's operating costs are likely to be.

Which of the following is a true statement about a company that uses the allowance method?

How is a company's operating cycle determined?

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900,respectively.During Year 2,Allegheny wrote off $1,500 of Uncollectible Accounts.Using the percent of receivables method,Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600.What amount will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

The longer it takes to collect accounts receivable,the greater the implicit interest cost that is incurred.

How is the average number of days to collect accounts receivable computed?