Question 1

Credit sales are recorded by crediting an Accounts Receivable.

Accepted Answer

A) True 
 B)False

Question 2

A company used 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:  All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Accepted Answer

A)  Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19,750. 
B)  Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225. 
C)  Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250. 
D)  Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350. 
E)  Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.

Question 3

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

Accepted Answer

A)  U.S. GAAP and IFRS have similar asset criteria that apply to recognition of receivables. 
B)  Receivables that arise from revenue-generating activities are subject to broadly similar criteria for U.S. GAAP and IFRS. 
C)  The realization principle under IFRS implies an arm's length transaction occurs. 
D)  Both refer to the realization principle and an earnings process. 
E)  Differences arise mainly from industry-specific guidance under U.S. GAAP.

Question 4

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on December 31, to record the accrued interest on the note?

Accepted Answer

A)  Debit Cash $20; credit Notes Receivable $20. 
B)  Debit Cash $100; credit Notes Receivable $100. 
C)  Debit Interest Receivable $20; credit Interest Revenue $20. 
D)  Debit Interest Receivable $100; credit Interest Revenue $100. 
E)  Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.

Question 5

Pledging receivables:

Accepted Answer

A)  Allows firms to raise cash. 
B)  Allows a firm to retain ownership of its receivables. 
C)  Does not transfer risk of bad debts to the lender. 
D)  Should be disclosed in the financial statements. 
E)  All of these.

Question 6

On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer Eric Simms as payment on his account. Compute the amount due at maturity for the note.

Accepted Answer

A)  $8,628 
B)  $8,192 
C)  $8,613 
D)  $8,500 
E)  $8,670

Question 7

Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method.

Accepted Answer

A) True 
 B)False

Question 8

Calco accepts all major bank credit cards, including First Bank's, which assesses a 3.5% charge on sales for using its card. On May 25, Calco had $4,800 in First Bank Card credit sales. What entry should Calco make on May 25 to record the deposit?

Accepted Answer

A)  Debit Accounts Receivable $4,800; credit Sales $4,800. 
B)  Debit Cash $4,632; debit Credit Card Expense $168; credit Sales $4,800. 
C)  Debit Cash $4,800; credit Sales $4,800. 
D)  Debit Cash $4,968; credit Credit Card Expense $168; credit Sales $4,800. 
E)  Debit Accounts Receivable $4,632; debit Credit Card Expense $168; credit Sales $4,800.

Question 9

Companies can report credit card expense as a discount deducted from sales or as a selling expense.

Accepted Answer

A) True 
 B)False

Question 10

If a credit card sale is made, the seller can either debit Cash or debit Accounts receivable at the time of the sale depending on the type of credit card.

Accepted Answer

A) True 
 B)False

Question 11

A promissory note:

Accepted Answer

A)  Is a short-term investment for the maker. 
B)  Is a written promise to pay a specified amount of money at a certain date. 
C)  Is a liability to the payee. 
D)  Is another name for an installment receivable. 
E)  Cannot be used in payment of an account receivable.

Question 12

A Company had net sales of $23,000 million, and its average account receivables were $5,860 million. Its accounts receivable turnover is 0.92.
$23,000/$5,860 = 3.9

Accepted Answer

A) True 
 B)False

Question 13

The maturity date of a note refers to the date the note must be repaid.

Accepted Answer

A) True 
 B)False

Question 14

Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

Accepted Answer

The answer of Describe how accounts receivable arise and how...

Question 15

When using the allowance method of accounting for uncollectible accounts, the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.

Accepted Answer

A) True 
 B)False

Question 16

For legal reasons, it is always a good business practice to accept a note receivable in exchange for an overdue account receivable.

Accepted Answer

A) True 
 B)False

Question 17

If a customer owes interest on accounts receivable, Interest Revenue is debited and Accounts Receivable is credited.

Accepted Answer

A) True 
 B)False

Question 18

ABC Co. sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring fee. Prepare the journal entry for ABC Co. to record the sale.

Accepted Answer

The answer of ABC Co. sold $80,000 of accounts receivable...

Question 19

A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account. The company also is charged a 2.5% service charge for these credit card sales. Assume that on April 13, the company sold $25,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

Accepted Answer

The answer of A company allows its customers to use...

Question 20

The buyer who purchases and takes ownership of another company's accounts receivable is called a:

Accepted Answer

A)  Payer. 
B)  Pledgor. 
C)  Factor. 
D)  Payee. 
E)  Pledgee.

Exam 9: Accounting for Receivables

Credit sales are recorded by crediting an Accounts Receivable.

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

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on December 31, to record the accrued interest on the note?

Pledging receivables:

On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer Eric Simms as payment on his account. Compute the amount due at maturity for the note.

Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method.

Calco accepts all major bank credit cards, including First Bank's, which assesses a 3.5% charge on sales for using its card. On May 25, Calco had $4,800 in First Bank Card credit sales. What entry should Calco make on May 25 to record the deposit?

Companies can report credit card expense as a discount deducted from sales or as a selling expense.

If a credit card sale is made, the seller can either debit Cash or debit Accounts receivable at the time of the sale depending on the type of credit card.

A promissory note:

A Company had net sales of $23,000 million, and its average account receivables were $5,860 million. Its accounts receivable turnover is 0.92. $23,000/$5,860 = 3.9

The maturity date of a note refers to the date the note must be repaid.

Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

When using the allowance method of accounting for uncollectible accounts, the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.

For legal reasons, it is always a good business practice to accept a note receivable in exchange for an overdue account receivable.

If a customer owes interest on accounts receivable, Interest Revenue is debited and Accounts Receivable is credited.

ABC Co. sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring fee. Prepare the journal entry for ABC Co. to record the sale.

The buyer who purchases and takes ownership of another company's accounts receivable is called a: