Exam 9: Accounting for Receivables

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable \ 435,000 Debit Allowance for Doubtful Accounts 1,250 Credit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Allowance for Doubtful Accounts is a contra asset; its balance is added to Accounts receivable.

Felton Corporation purchased $4,000 in merchandise from Marita Co. Felton signed a 60-day, 10%, $4,000 promissory note. Marita should record the sale with a journal entry debiting ________ for $ ________ and crediting ________ for $ ________.

All of the following statements regarding valuation of receivables under U.S. GAAP and IFRS are true except:

Sellers allow customers to use credit cards for all of the following reasons except:

Jordan Co. uses the allowance method of accounting for uncollectible accounts. Jordan Co. accepted a $5,000, 12%, 90-day note dated May 16, from Beckam Co. in exchange for its past-due account receivable. Make the necessary general journal entries for Jordan Co. on May 16 and the August 14 maturity date, assuming that the: a. Note is held until maturity and collected in full at that time. b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.

The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)

Duerr company makes a $60,000, 60-day, 12% cash loan to Ryan Co. The maturity value of the loan is: (Use 360 days a year.)

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of the note?

A credit sale of $5,275 to a customer would result in which of the following?

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is: (Use 360 days a year.)

Companies can report credit card expense as a reduction in net sales or as a selling expense.

The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.

If a credit card sale is made, the seller debits Cash and credits Sales for the same amount.

To write off an uncollectible account receivable when the allowance method of accounting for uncollectible accounts is used, a company should debit ________ and credit accounts receivable.

Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?

A promissory note:

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

A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date.