Exam 5: Cash and Receivables

What is a "promissory note"?

The accounting records of 10Com Ltd. show the following for 2012: *The credit side of the journal entry (or entries)related to this amount went to allowance for doubtful accounts. ** Account write-offs were debited to the allowance for doubtful accounts. More Info For 2012, cash sales were $970,000, while credit sales were $720,000. Recently, 10Com's management has become concerned about various estimates used in its accounting system, including those relating to receivables and uncollectible accounts. The company is considering two alternatives. For the purpose of comparing these two alternatives, the company has made the following estimates for each alternative. •Alternative 1: Bad debts approximating 0.7% of credit sales. •Alternative 2: Aging of the accounts receivable at the end of the period, where 80% would incur a 2% loss, while the remaining 20% would incur a 9% loss. Required: For each of the two alternatives listed above, calculate the bad debts expense for 2012 and the allowance for doubtful accounts balance at the end of 2012.

Which statement about using the percentage of credit sales to estimate bad debt expense is not correct?

Based on the following information for calendar 2012: If bad debts expense is estimated at 1.5% of credit sales, what is the balance in the allowance for doubtful accounts at year end?

Which statement is correct about recording an allowance for doubtful accounts?

Brasser Co. started using the percentage of sales method to account for bad debts in 2012. In 2011, the company's first fiscal year, the company had used the direct write-off method because the amount of bad debts was judged to be immaterial. The following information relates to the company's sales and receivables. Required: a. Calculate the correct balance in the allowance for doubtful accounts (ADA)at the end of 2012. Remember to include the effect of the change in accounting policy on 2011 accounts. b. Record the write-off entry for 2012 and the year-end adjusting entries for 2012 to adjust the ADA. (Ignore income tax effects)

Explain how a company can use its credit policy for customers and allowance for bad debts policies to manipulate earnings.

Lenient Corp. reported cash sales of $1,145,000, credit sales of $1,880,000, cash returns of $50,000, bad debt write-offs of $300,000 and bad debt expense of $250,000 for last year. Accounts receivable had a balance of $3,400,000 at the beginning of the year and $2,350,000 at the end of the year. How much cash was collected from customers during the year?

Collier Port Authority has had a long-standing relationship with a nearby lumber company, which ships a significant amount of lumber through the port. To help finance the lumber company's operations, Collier advanced $10 million to them in return for a promissory note which specified payment of the $10 million, plus interest at 15%, due at the end of two years. However, due to adverse conditions in the lumber industry, the lumber company was unable to meet its obligation and pay Collier at the end of the two years. In light of the importance of the relationship between Collier and the lumber company, Collier extended the due date by three years (after the original two years), but increased the repayment amount to $14 million, inclusive of interest. The market interest rate for the loan remained at 15%. Record the journal entries relating to the note receivable from the date of issuance to the restructuring date, inclusive.

K-Jones Ltd. reported opening balances of $1,712,000 in accounts receivable and $147,000 in the allowance for doubtful accounts at the beginning of last year. During the year, sales on account totaled $2,500,000, collections of accounts receivable were $1,300,000, bad debt write-offs were $65,000 and bad debt expense was $89,000. What was the ending balance in the allowance for doubtful account?

Micelle Inc. reported credit sales of $600,000 and cash collections of $450,000 for last year. The ending balance in accounts receivable was $800,000. Bad debt expense is estimated at 1% of credit sales. The allowance for doubtful accounts had a balance of $80,000 at the beginning of the year. Assuming there are no write-offs made during the year, what was the balance in the allowance for doubtful accounts at the end of the year?

What amount will be included in "cash and cash equivalents"?

Gossamer Furnishings extends generous payment terms to its customers. As a result, it has accumulated a substantial portfolio of accounts receivable. To improve cash flow, the company decided to sell $600,000 of these receivables to a factor. The company had previously checked the creditworthiness of its customers, so it is confident that few accounts will become uncollectible. Therefore, Gossamer chose to factor these receivables with recourse. In exchange for these receivables, the factor paid Gossamer 93¢ on each dollar of receivables on the date of transfer. The factor also held 2¢ on each dollar for potential uncollectible accounts. Ultimately, the factor collected $593,800 from these receivables. Record the entries on Gossamer's books relating to the $600,000 factoring of accounts receivable.

During May 2012, ABC Company wrote a cheque (#345)to a supplier as a payment on its account. The cheque was written for the correct amount of $16,900. The May bank statement listed the cheque at $61,900 and an ending account balance of $(50,500)in overdraft. Required: a. Given the above information, prepare the portion of the May cash reconciliation that reconciles the bank balance to the cash balance to be used in the financial statements. b. Where on the balance sheet should the cash (or overdraft)balance be shown?

What amount will be included in "cash and cash equivalents"?

Marvelos Inc. reported credit sales of $1,000,000, cash sales of $100,000 and bad debt write-offs of $10,000 for last year. The ending balance in accounts receivable was $1,500,000. Bad debt expense was $15,000. The allowance for doubtful accounts had a balance of $40,000 at the beginning of the year. What was the balance in the allowance for doubtful accounts at the end of the year?

Micelle Inc. reported credit sales of $600,000, cash collections of $450,000 and bad debt expense of $15,000 for last year. Accounts receivable had a balance of $1,000,000 at the end of the year. Assuming there are no write-offs made during the year, what was the balance in the accounts receivable account at the beginning of the year?

Which statement about internal controls over cash is correct?

Explain why a bank reconciliation is necessary.

Which statement is correct?