Exam 9: Accounting for Receivables

At December 31, Yarrow Company reports the following results for its calendar year from the adjusted trial balance. Credit sales \ 2,300,000 Cash sales 1,050,000 Accounts Receivable 295,000 Allowance for doubtful accounts (credit balanes) 750 a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.1% of credit sales. b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be .8% of total sales. c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 7.0% of year-end accounts receivable.

A company borrowed $10,000 by signing a six-month promissory note at 5% interest. The amount of interest to be paid at maturity is $25.

Factoring receivables is beneficial to a seller for all of the following reasons except:

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due on the note? (Use 360 days a year.)

On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end? (Use 360 days a year.)

On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

Failure by a promissory notes' maker to pay the amount due at maturity is known as:

The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the higher the likelihood of collection.

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record this sale transaction would be:

Match each of the following terms with the appropriate definitions. A. Maker of a note B. Bad debts C. Aging of accounts receivable D. Interest E. Promissory note F. Payee of a note G. Accounts receivable H. Allowance for doubtful accounts I. Realizable value J. Expense recognition (matching) principle _____ 1. Amounts due from customers for credit sales. _____ 2. A process of classifying accounts receivable by how long it is past its due date for the purpose of estimating the amount of uncollectible accounts. _____ 3. A written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date. _____ 4. The expected proceeds from converting an asset into cash. _____ 5. The uncollectible accounts of credit customers who do not pay what they have promised. _____ 6. The accounting principle that requires expenses to be reported in the same period as the sales they helped to produce. _____ 7. The charge a borrower pays for using money borrowed. _____ 8. A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible. _____ 9. The party who signs a note and promises to pay it at maturity. _____ 10. The party to whom the promissory note is payable.

Under IFRS, the term provision:

What are some of the considerations management should make when assessing the accounts receivable turnover ratio?

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable $375,000 debit Allowance for uncollectible accounts 500 credit Net Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. -If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)

What is the accounts receivable turnover ratio? How is it calculated and how is it used to assess financial condition?

For legal reasons, it is not advisable to accept a note receivable in exchange for an overdue account receivable.

MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be:

The materiality constraint, as applied to bad debts:

Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Gemstone Products allows customers to use bank credit cards to charge purchases. The bank used by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all credit card receipts deposited are credited to the company account on the day of deposit. Assume that on January 18, Gemstone Products sold and deposited $18,000 worth of bank credit card receipts. Prepare the general journal entry to record this transaction.