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Exam 8: Accounting for Receivables

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Question 71

True/False

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Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

A) True
B) False

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Question 72

Multiple Choice

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Writing off an uncollectible account under the allowance method requires a debit to

A) Accounts Receivable.
B) Allowance for Doubtful Accounts.
C) Bad Debt Expense.
D) Uncollectible Accounts Expense.

E) A) and B)
F) None of the above

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Question 73

Multiple Choice

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The interest on a $9,000, 6%, 90-day note receivable is

An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 debit balance, the adjustment to record bad debts for the period will require a

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Randie Company lends Luann Company $10,000 on April 1, accepting a four-month, 6% interest note. Randie Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? a. $\begin{array}{lrr} \text { Note Receivable} &10,000\\ \text { Cash} &&10,000\\\end{array}$ b. $\begin{array}{lrr} \text {Interest Receivable } &50\\ \text {Interest Revenue } &&50\\\end{array}$ c. $\begin{array}{lrr} \text { Cash} &50\\ \text { Interest Revenue } &&50\\\end{array}$ d. $\begin{array}{lrr} \text {Interest Receivable } &200\\ \text { Interest Revenue } &&200\\\end{array}$

Three accounting issues associated with accounts receivable are

The maturity value of a $5,000, 9%, 60-day note receivable dated February 10th is

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables?

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debt expense for the period?

On January 15, 2015, Craig Company received a two-month, 9%, $9,000 note from William Pentel for the settlement of his open account. The entry by Craig Company on January 15, 2015 would include a:

In 2015, Boyle Company had credit sales of $1,080,000 and granted sales discounts of $24,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of $26,400. During 2015, $45,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2015?

An alternative name for Bad Debt Expense is

On January 15, 2015, Craig Company received a two-month, 9%, $9,000 note from William Pentel for the settlement of his open account. The entry by Craig Company on March 15, 2015 if Pentel dishonors the note and collection is expected is: a. $\begin{array}{lrr} \text { Accounts Receivable-W. Pentel } &9,000\\ \text { Notes Recelvable } &&9,000\\\end{array}$ b. $\begin{array}{lrr} \text {Accounts Receivable-W. Pentel } &9,135\\ \text { Notes Recelvable } &&9,000\\\text { interest Revenue } &&135\end{array}$ c. $\begin{array}{lrr} \text { Accounts Receivable-W. Pentel } &8,865\\ \text {interest Revenue } &135\\\text { Notes Recelvable} &&9,000\end{array}$ d. $\begin{array}{lrr} \text {Bad Debt Expense } &9,135\\ \text {Notes Recelvable } &&9,135\\\end{array}$

Other receivables include nontrade receivables such as loans to company officers.

T'Pol Furniture factors $900,000 of receivables to Trip Factors, Inc. Trip Factors assesses a 2% service charge on the amount of receivables sold. T'Pol Furniture factors its receivables regularly with Trip Factors. What journal entry does T'Pol make when factoring these receivables? a. $\begin{array}{lrr} \text { Cash } &882,000\\ \text { Loss on Sale of Receivables } &18,000\\ \text { Accounts Receivable }&&900,000\end{array}$ b. $\begin{array}{lrr} \text { Cash } &882,000\\ \text { Accounts Receivable } &&882,000\\\end{array}$ c. $\begin{array}{lrr} \text { Cash} &900,000\\ \text { Accounts Receivable} &&882,000\\ \text { Gain on Sale of Receivables }&&18,000\end{array}$ d. $\begin{array}{lrr} \text { Cash } &882,000\\ \text {Service Charge Expense } &18,000\\ \text { Accounts Receivable }&&900,000\end{array}$

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

The financial statements of Gervais Manufacturing Company report net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

On October 1, 2015, Milago Company sells (factors) $700,000 of receivables to Beanfield Factors, Inc. Beanfield assesses a service charge of 3% of the amount of receivables sold. The journal entry to record the sale by Milago will include

A company that receives an interest bearing note receivable will