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Exam 9: Accounting for Receivables

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Question 61

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Receivables can be used to obtain cash by either selling them or using them as security for a loan.

A) True
B) False

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Question 62

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If a 90-day note receivable is dated June 12, what is the maturity date of the note?

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Question 63

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Explain how to record the receipt of a note receivable.

When using the allowance method of accounting for uncollectible accounts, the entry to write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable - Harold.

The Connecting Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred: 1. Prepare the general journal entries to record these transactions. 2. If the balance of the allowance for uncollectible accounts was $8,000 on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year.

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in fraction of year.

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

The materiality constraint permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

TechCom's customer, RDA, paid off an $8,300 balance on its account receivable. TechCom should record the transaction as a debit to Accounts Receivable-RDA and a credit to Cash.

On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer Eric Simms as payment on his account. Compute the maturity date for the note.

Tecom had net sales of $315,000 and average accounts receivable of $75,600. Its competitor, ZCom, had net sales of $299,000 and average accounts receivables of $81,350. Calculate the accounts receivable turnover for both companies. Which company is doing a better job of managing its accounts receivables?

Darby uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be .5% of sales, what is the amount of the bad debts expense adjusting entry?

A promissory note received from a customer in exchange for an account receivable:

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on January 15 of the next year when the note is paid?

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

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.

Companies follow both the matching principle and the materiality constraint when applying the direct write-off method.

A dishonored note receivable is usually reclassified as an account receivable.

Explain the basic difference between estimating the amount of uncollectible accounts using the percent of sales method and the accounts receivable method.