Exam 7: Receivables and Investments

On July 1, 2014, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2015. If Falcon's fiscal year ends September 30, 2014, an adjusting entry is needed to:

One of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle.

Select the term from the list below that matches each of the following six descriptions. -The amount of cash the maker is to pay the payee on the maturity date of the note

Assume that on December 13, 2016, Royal Company sells a computer to Savco Corp. at an invoice price of $25,000. Because Savco is short of cash, it gives Royal a 90-day, 12% promissory note. [Assume a 360 day year for interest calculations.] Required: 1 What is the total amount of interest that will be due on the maturity date? 2 What are the effects on the accounting equation for Royal's transaction to record receipt of the note? 3 If Royal has a December 31 year-end, what is the effect of the adjustment needed to record interest due but not yet received? 4 How much interest will Royal earn in 2017? 5 On what day will the note mature? 6 What are the effects on the accounting equation for Royal's transaction recorded on the maturity date?

The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place.

-Refer to the information for Mellon Corporation. If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

Assume that Momentum Inc. has total accounts receivable of $250,000 and an associated allowance for doubtful accounts of $10,000 at the end of 2015. 1 What is the net realizable value of receivables for Momentum? 2 How should Momentum present this information on its balance sheet?

When an investor is able to secure significant influence over an investee, the method of accounting is used.

What is the purpose of an aging schedule?

Which of the following statements is true regarding the two allowance methods used to account for bad debts?

Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a customer. The credit card company charges a 5% service charge. Recording the transaction in the company's accounting records will have what effect on the accounting equation?

Hemmer Company received a 12%, 6-month promissory note with a face amount of $10,000 from Stutfeld Company, for the sale of merchandise on December 1, 2014. A Which party is the maker? _______________________ B Which party is the payee? _____________________ C Determine the maturity value of the note.

Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance?

An is a written promise to repay a definite sum of money either upon demand, or at a fixed or determinable date in the future.

What is the purpose of an accounts receivable subsidiary ledger?

Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur.

The equity method of accounting for an investment is used when a company purchases

Match the following definitions with their appropriate terms in the next 14 questions. -Number of days' sales in receivables

Match the following definitions with their appropriate terms in the next eight questions. -Direct write-off method

The payee of a note recognizes on its income statement.