Chapter 09 Accounting for Receivables

MULTIPLE CHOICE QUESTIONS

A receivable is an amount due from another party.

• 1. True
  2. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Credit sales are recorded by crediting Accounts Receivable.

• 1. True
  2. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. As long as a company accurately records total credit sales information, it is not necessary to have separate accounts for specific customers.

True

• 1. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

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

True

• 1. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

• 1. True
  2. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Installment Accounts Receivable are classified as non-current assets if the installment period is more than one year, even if the seller regularly offers customers such terms.

True

• 1. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

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

• 1. True
  2. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. BizCom's customer, Redding, paid off an $8,300 balance on its account receivable. BizCom should record the transaction as a debit to Accounts Receivable—Redding and a credit to Cash.

True

• 1. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

• 1. True
  2. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The formula for computing interest on a note is: Principal of the note × Annual interest rate × Time expressed in fraction of year.

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

The person that borrows money and signs a promissory note is called the maker.

• 1. True
  2. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. 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.

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company borrowed $16,000 by signing a 4-month promissory note at 12%. The amount of interest to be paid at maturity is $640.

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Federal laws prohibit the selling of accounts receivables to factors.

• 1. True
  2. False

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Decision Making

1. The process of using accounts receivable as security for a loan is known as pledging accounts receivable.

True

• 1. False

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Decision Making

1. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

True

• 1. False

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.

True

• 1. False

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The quality of receivables refers to the likelihood of collection without loss.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

1. The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

1. A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

1. The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

1. A company had net sales of $550,000 and an average accounts receivable of $110,000. Its accounts receivable turnover equals 5.0.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A Company had net sales of $23,000, and its average account receivables were $5,700. Its accounts receivable turnover is 0.24.

True

• 1. False

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

True

• 1. False

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The expense recognition (matching) principle requires use of the allowance method of accounting for bad debts.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The use of the direct write-off method is allowed under the materiality constraint.

• 1. True
  2. False

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable.; 09-P2 Apply the allowance method to accounts receivable.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The expense recognition (matching) principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

True

• 1. False

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. When using the allowance method of accounting for uncollectible accounts, the entry to write off Jeannie's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable—Jeannie.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The realizable value refers to the expected proceeds from converting an asset into cash.

• 1. True
  2. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

• 1. True
  2. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The allowance method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

True

• 1. False

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the percent of each uncollectible class.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Installment accounts receivable is another name for aging of accounts receivable.

• 1. True
  2. False

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. 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.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The percent of sales method for estimating bad debts uses only income statement account balances to estimate bad debts.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. 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.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible. The estimated amount of bad debts expense is

$3,500.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible. The unadjusted balance in Allowance for Doubtful Accounts is a $300 credit. The estimated amount of bad debts expense is $3,200

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The percent of sales method of estimating bad debts focuses more on the realizable value of accounts receivable than on expense recognition.

True

• 1. False

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The period of a note is the time from the note's (contract) date to its maturity date.

• 1. True
  2. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Notes receivable are classified as current liabilities regardless of the time to maturity.

• 1. True
  2. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company received a $15,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable.

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

True

• 1. False

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Reflective Thinking AICPA: FN Risk Analysis; BB Legal

A note that the maker is unable or refuses to pay at maturity is called a dishonored note.

• 1. True
  2. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A maker who dishonors a note is one who does not pay it at maturity.

• 1. True
  2. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

When a note receivable is dishonored, it reverts to an account receivable.

• 1. True
  2. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. The notes receivable account of a business should include both the notes that have not yet matured and the dishonored notes.

True

• 1. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not yet matured in the Notes Receivable account.

True

• 1. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The expense recognition (matching) principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.

True

• 1. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. When posting a dishonored note to a customer's account, an explanation is included so as not to misinterpret the debit as a sale on account.

True

• 1. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The banker's rule simplifies interest computations by treating a year as having 365 days.

• 1. True
  2. False

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Separate accounts receivable information for each customer is important because it reveals all of the following except:

When the customer intends to pay outstanding balances.

• 1. The basis for sending bills to customers.
  2. How much each customer has purchased on credit.
  3. How much each customer has paid.
  4. How much each customer still owes.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

• 1. A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.
  2. A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.
  3. A credit to Sales and a credit to the customer's account in the accounts receivable subsidiary ledger.
  4. A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.
  5. A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

• 1. To speed up receipt of cash from the credit sale.
  2. To lessen the risk of extending credit to customers who cannot pay.
  3. To avoid having to evaluate a customer's credit standing for each sale.
  4. To be able to charge more due to fees and interest.
  5. To increase total sales volume.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Which of the following is not true regarding a credit card expense?

• 1. Credit card expense is not recorded by the seller.
  2. Credit card expense may be classified as a selling expense.
  3. Credit card expense is a fee the seller pays for services provided by the card company.
  4. Credit card expense may be classified as a "discount" deducted from sales to get net sales.
  5. Credit card expense may be classified as an administrative expense.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

A note payable.

• 1. A note receivable.
  2. An account receivable.
  3. A cash equivalent.
  4. A short-term investment.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The person who signs a note receivable and promises to pay the principal and interest is the:

• 1. Maker. B) Owner. C) Payee. D) Holder. E) Receiver.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Reporting the details of notes is consistent with which accounting principle that requires financial statements (including footnotes) to report all relevant information?

Relevance.

• 1. Expense recognition (matching).
  2. Full disclosure.
  3. Evaluation.
  4. Materiality.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

A promissory note:

• 1. Is another name for an installment receivable.
  2. Is a short-term investment for the maker.
  3. Is a written promise to pay a specified amount of money at a certain date.
  4. Is a liability to the payee.
  5. Cannot be used in payment of an account receivable.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The maturity date of a note receivable:

• 1. Is the last day of the month.
  2. Is the day the note was signed.
  3. Is the day the note is due to be repaid.
  4. Is the date of the first payment.
  5. Is the day of the credit sale.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

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

A) $37.50. B) $450.00. C) $11.25. D) $112.50. E) $1,800.00.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A 90-day note issued on April 10 matures on:

• 1. July 10. B) July 11. C) July 12. D) July 13. E) July 9.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is:

(Use 360 days a year.)

A) $150.00. B) $37.50. C) $75.00. D) $87.50. E) $50.00.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is: (Use 360 days a year.)

A) $450 B) $1,800 C) $900 D) $300 E) $75

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company borrowed $10,000 by signing a 180-day promissory note at 9%. The maturity value of the note is: (Use 360 days a year.)

A) $11,800 B) $10,075 C) $10,900 D) $10,300 E) $10,450

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

Payee. B) Pledgee. C) Payer. D) Pledger. E) Factor.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

• 1. There are no fees for factoring.
  2. Passes ownership of the receivables to the factor.
  3. Allows firms to receive cash earlier.
  4. May transfer the risk of bad debts to the factor.
  5. Seller avoids the cost of billing and accounting for receivables.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:
   1. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $46,800.

Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.

• 1. Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.

Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

• 1. Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The quality of receivables refers to:

The likelihood of collection without loss.

• 1. Sales turnover.
  2. The creditworthiness of sellers.
  3. The speed of collection.
  4. The interest rate.

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

The account receivable turnover measures:

• 1. How long it takes to sell accounts receivable to a factor.
  2. How long it takes to sell merchandise inventory.
  3. The relation of cash sales to credit sales.
  4. How often, on average, receivables are received and collected during the period.
  5. All of the options are correct.

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

The accounts receivable turnover is calculated by:

• 1. Dividing average accounts receivable by net sales and multiplying by 365.
  2. Dividing net income by average accounts receivable.
  3. Dividing net sales by average accounts receivable and multiplying by 365.
  4. Dividing net sales by average accounts receivable.
  5. Dividing average accounts receivable by net sales.

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

1. A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period?

A) 5.00 B) 3.0 C) 20.0 D) 73.0 E) 0.33

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is:

A) 7.1. B) 9.7. C) 68.3. D) 51.7. E) 37.8.

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

Axle's credit policies are too loose.

• 1. Betterman's turnover is improving.
  2. Axle has the better turnover for both years.
  3. Betterman is collecting its receivables more quickly than Axle in both years.
  4. Betterman has the better turnover for both years.

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable of $75,000. Its accounts receivable turnover equals:

A) 7.75 B) 10.00 C) 8.00 D) .13 E) .80

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable of $90,000. Its accounts receivable turnover equals:

A) 54.8 B) 1.1 C) 6.3 D) 6.1 E) 63.0

Learning Objective: 09-A1 Compute accounts receivable turnover and use it to help assess financial condition. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

The expense recognition (matching) principle, as applied to bad debts, requires:

• 1. The use of the direct write-off method for bad debts.
  2. That bad debts not be written off.
  3. That bad debts be disclosed in the financial statements.
  4. That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.

The use of the allowance method of accounting for bad debts.

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The materiality constraint, as applied to bad debts:

• 1. Requires that bad debts not be written off.
  2. Requires use of the direct write-off method.
  3. Requires use of the allowance method for bad debts.
  4. Requires that expenses be reported in the same period as the sales they helped produce.
  5. Permits the use of the direct write-off method when bad debts expenses are relatively small.

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

No effect on the expenses of the current period.

• 1. A reduction in current liabilities.
  2. An increase in the expenses of the current period.
  3. A reduction in equity.
  4. A reduction in current assets.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

Decrease in net income; decrease in total assets.

• 1. Increase in net income; no effect on total assets.
  2. Decrease in net income; no effect on total assets.
  3. No effect on net income; no effect on total assets.
  4. No effect on net income; decrease in total assets.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the direct write-off method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

Decrease in net income; decrease in total assets.

• 1. Decrease in net income; no effect on total assets.
  2. Increase in net income; no effect on total assets.
  3. No effect on net income; no effect on total assets.
  4. No effect on net income; decrease in total assets.

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Gideon Company uses the allowance 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:

A)

B)

C)

D)

E)

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

A)

B)

C)

D)

E)

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A)

B)

C)

D)

E)

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A)

B)

C)

D)

E)

Learning Objective: 09-P1 Apply the direct write-off method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The allowance method based on the idea that a given percent of a company's credit sales for the period is uncollectible is:

The percent of accounts receivable method.

• 1. Factoring method.
  2. The percent of sales method.
  3. Direct write-off method.
  4. The aging of accounts receivable method.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

Percent of accounts receivable method.

• 1. Percentage of sales method.
  2. Aging of investments method.
  3. Direct write-off method.
  4. Aging of accounts receivable method.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

Adjustment method for uncollectible debts.

• 1. Direct write-off method of accounting for bad debts.
  2. Allowance method of accounting for bad debts.
  3. Cash basis method of accounting for bad debts.
  4. Aging of notes receivable.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

A) $6,636. B) $5,715. C) $5,660. D) $4,794. E) $5,770.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A)

B)

C)

D)

E)

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 credit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A)

B)

C)

D)

E)

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 debit

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?

A) $4,800 B) $5,500 C) $4,500 D) $1,275 E) $1,775

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

A) $5,500 B) $1,275 C) $1,775 D) $4,800 E) $4,500

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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 debit

Net Sales 800,000 credit

All sales are made on credit. Based on past experience, the company estimates 0.6% of net 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?

Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.

• 1. Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
  2. Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.
  3. Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
  4. Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an

$800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A) $3,632 B) $3,568 C) $3,600 D) $4,400 E) $2,800

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an

$800 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A) $3,568 B) $4,400 C) $3,632 D) $3,600 E) $2,800

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the transaction should be:

Debit Notes Receivable $25,000; credit Sales $25,000.

• 1. Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.
  2. Debit Notes Payable $25,000; credit Accounts Payable $25,000.
  3. Debit Notes Receivable for $25,000; credit Cash $25,000.
  4. Debit Cash $25,000; credit Notes Receivable for $25,000.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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.)

A) $437.50. B) $875.00. C) $145.83. D) $19.44. E) $1,750.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

Debit Cash $25,437.50; credit Notes Receivable for $25,437.50.

• 1. Debit Cash $26,750; credit Interest Revenue $1,750, credit Notes Receivable $25,000.
  2. Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.
  3. Debit Cash for $25,000; credit Notes Receivable $25,000.
  4. Debit Notes Payable $25,000; Debit Interest Expense $1,750; credit Cash $26,750.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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) $60,000. B) $58,800. C) $1,200. D) $61,200. E) $67,200.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 1. Lemming's end-of-period adjusting entry on December 31 should be:

Debit Interest Receivable $500; credit Interest Revenue $500.

• 1. Debit Cash for $250; credit Notes Receivable $250.
  2. Debit Interest Revenue $500; credit Notes Receivable $500.
  3. Debit Interest Receivable $250; credit Interest Revenue $250.
  4. Debit Notes Receivable $500; credit Interest Revenue $500.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The amount due on the maturity date of a $6,000, 60-day 4%, note receivable is: (Use 360 days a year.)

A) $6,240. B) $5,760. C) $6,000. D) $6,040. E) $5,960.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the sales transaction is:

Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060

• 1. Debit Notes Receivable $4,060; credit Sales $4,060
  2. Debit Accounts Receivable $4,060; credit Sales $4,060
  3. Debit Notes Receivable $4,000; credit Sales $4,000
  4. Debit Accounts Receivable $4,000; credit Sales $4,000

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

Debit Notes Receivable $4,000; credit Cash $4,000

• 1. Debit Notes Receivable $4,060; credit Sales $4,060
  2. Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,060
  3. Debit Cash $4,060; credit Notes Receivable $4,060
  4. Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the sales transaction is:

Debit Notes Receivable $7,800; debit Interest Receivable $104; credit Sales $7,904

• 1. Debit Notes Receivable $7,904; credit Sales $7,904
  2. Debit Notes Receivable $7,800; credit Sales $7,800
  3. Debit Accounts Receivable $7,800; credit Sales $7,800
  4. Debit Accounts Receivable $7,904; credit Sales $7,904

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the collection on the maturity date is:

Debit Notes Receivable $8,008; credit Cash $7,904; credit Interest Revenue $104

• 1. Debit Cash $7,904; credit Notes Receivable $7,904
  2. Debit Accounts Receivable $7,904; credit Notes Receivable $7,800; credit Interest Receivable $104

Debit Cash $7,800; credit Accounts Receivable $7,800

• 1. Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Honoring a note receivable indicates that the maker has:

• 1. Paid in full.
  2. Notarized.
  3. Guaranteed.
  4. Cosigned.
  5. Signed.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

• 1. Protesting a note.
  2. Dishonoring a note.
  3. Closing a note.
  4. Depreciating a note.
  5. Discounting a note.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.) (Use 360 days a year.)
   1. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit Notes Receivable $4,800.

Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.

• 1. Debit Cash $4,920; credit Notes Receivable $4,920.
  2. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.

Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on December 31, to record the accrued interest on the note?

Debit Interest Receivable $20; credit Interest Revenue $20.

• 1. Debit Cash $100; credit Notes Receivable $100.
  2. Debit Interest Receivable $100; credit Interest Revenue $100.
  3. Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.
  4. Debit Cash $20; credit Notes Receivable $20.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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.)
   1. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit Notes Receivable $4,800.

Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.

• 1. Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable

$100, credit Notes Receivable $4,800.

Debit Cash $4,920; credit Notes Receivable $4,920.

• 1. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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.)

A) $8,130 B) $7,800 C) $7,930 D) $130 E) $8,050

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a
2. day, 10% promissory note for $7,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note? (Use 360 days a year.)

Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.

• 1. Debit Accounts Receivable—Valley Spa $7,800; credit Notes Receivable $7,800.
  2. Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable

$8,060.

• 1. Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800.

Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Which of the following is not true about the Allowance for Doubtful Accounts?

• 1. It is a contra asset account.
  2. It is a liability account.
  3. It is used instead of reducing accounts receivable directly.
  4. It is debited when uncollectible accounts are written off.
  5. It is credited when bad debts expense is estimated and recorded.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?
   1. Debit Cash $75,000; credit Factoring Fee Expense $3,750; credit Accounts Receivable

$75,000

Debit Cash $71,250; credit Accounts Receivable $71,250

• 1. Debit Accounts Receivable $75,000; credit Factoring Fee Expense $3,750; credit Cash

$71,250

• 1. Debit Cash $71,250; debit Factoring Fee Expense $3,750; credit Accounts Receivable

$75,000

• 1. Debit Accounts Receivable $71,250; debit Factoring Fee Expense $3,750; credit Cash

$75,000

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

Debit Accounts Receivable $3,500; credit Sales $3,500

• 1. Debit Cash $3,500; credit Sales $3,500
  2. Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500
  3. Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
  4. Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

Debit Cash $4,920; credit Credit Card Expense $120; credit Sales $4,800.

• 1. Debit Accounts Receivable $4,680; debit Credit Card Expense $120; credit Sales $4,800.
  2. Debit Accounts Receivable $4,800; credit Sales $4,800.
  3. Debit Cash $4,800; credit Sales $4,800.
  4. Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?

A) $4,845 B) $3,700 C) $3,515 D) $4,180 E) $3,850

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 0.5% of sales, what is the amount of the bad debts expense adjusting entry?

A) $5,290 B) $4,625 C) $4,750 D) $4,825 E) $3,960

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

October 8

• 1. November 6
  2. October 7
  3. November 7
  4. November 8

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the amount due at maturity for the note. (Use 360 days a year.)

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

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

Debit Notes Receivable $8,670; credit Sales $8,670.

• 1. Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.
  2. Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable

$8,500.

Debit Accounts Receivable $8,500; credit Sales $8,500.

• 1. Debit Notes Receivable $8,500; credit Sales $8,500.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)

Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.

• 1. Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500.
  2. Debit Cash $8,500; credit Notes Receivable $8,500.
  3. Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670.
  4. Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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.)

Debit Interest Receivable $140; credit Interest Revenue $140.

• 1. Debit Notes Receivable $140; credit Interest Revenue $140.
  2. Debit Interest Receivable $1,200; credit Interest Revenue $1,200.
  3. Debit Notes Receivable $140; credit Interest Receivable $140.
  4. Debit Interest Revenue $200; credit Interest Receivable $200.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer settle an account. What entry should be made on the November 1 to record the acceptance of the note?

Debit Note Receivable $10,000; credit Cash $10,000.

• 1. Debit Note Receivable $10,200; credit Accounts Receivable $10,000; credit Interest Revenue

$200.

Debit Note Receivable $10,000; credit Accounts Receivable $10,000.

• 1. Debit Sales $10,000; credit Accounts Receivable $10,000.
  2. Debit Note Receivable $10,000; credit Sales $10,000.

Learning Objective: 09-C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

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?

Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.

• 1. Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
  2. Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
  3. Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
  4. Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

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?

Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.

• 1. Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
  2. Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
  3. Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
  4. Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense.

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?

Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250.

• 1. Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19,750.
  2. Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.
  3. Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
  4. Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.

Learning Objective: 09-P3 Estimate uncollectibles based on sales and accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300.

• 1. Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300.
  2. Debit Bad Debts Expense $2,300; credit Allowance for Doubtful Accounts $2,300.
  3. Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300.
  4. Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

Under U.S. GAAP, provision refers to a liability whose amount or timing is uncertain.

• 1. Differences arise mainly from industry-specific guidance under U.S. GAAP.
  2. The realization principle under GAAP implies an arm's length transaction occurs.
  3. Receivables that arise from revenue-generating activities are subject to broadly similar criteria for U.S. GAAP and IFRS.

U.S. GAAP and IFRS have similar asset criteria that apply to recognition of receivables.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Global

1. All of the following statements regarding valuation of receivables under U.S. GAAP and IFRS are true except:
   1. Both allow using percent of sales, percent of receivables, or aging of receivables to estimate uncollectibles.
   2. Both require that the expenses for estimated collectibles be recorded in the same period revenues generated from those receivables are recorded.

Both require the allowance method for uncollectibles unless uncollectibles are immaterial.

• 1. Both require that receivables be reported net of estimated collectibles.
  2. Both require that the expense related to uncollectibles be recorded when the receivable is determined to be uncollectible.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Global

1. Under IFRS, the term provision:

Means establishing an asset account.

• 1. Refers to expense.
  2. Means establishing a provision for bad debts.
  3. Means establishing a contra-asset account.
  4. Usually refers to a liability whose amount or timing is uncertain.

Learning Objective: 09-P2 Apply the allowance method to accounts receivable. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Global

1. Winkler Company borrows $85,000 and pledges its receivables as security. The journal entry to record this transaction would be:

Debit Cash $85,000 and credit Notes Payable $85,000.

• 1. Debit Cash of $85,000 and credit Accounts Receivable $85,000.
  2. Debit Cash of $85,000 and credit Accounts Payable $85,000.
  3. Debit Accounts Receivable $85,000 and credit Notes Payable $85,000.
  4. Debit Note Receivable $85,000 and credit Accounts Receivable $85,000.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

Debit Accounts Receivable $625 and credit Sales $625.

• 1. Debit Accounts Receivable $625 and credit Cash $625.
  2. Debit Sales $625 and credit Accounts Receivable $625.
  3. Debit Cash of $625 and credit Accounts Receivable $625.
  4. Debit Cash of $625 and credit Sales $625.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

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

Debit Cash of $625 and credit Accounts Receivable $625.

• 1. Debit Sales $625 and credit Accounts Receivable $625.
  2. Debit Accounts Receivable $625 and credit Cash $625.
  3. Debit Cash of $625 and credit Sales $625.
  4. Debit Accounts Receivable $625 and credit Sales $625.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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:

Debit Cash of $300 and credit Accounts Receivable $300.

• 1. Debit Cash $295.50 and credit Sales $295.50.
  2. Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.
  3. Debit Cash of $300 and credit Sales $300.
  4. Debit Accounts Receivable $300 and credit Sales $300.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards. MacKenzie electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record this sale transaction would be:

Debit Cash of $180 and credit Accounts Receivable—Regional $180.

• 1. Debit Cash $172.80 and credit Sales $172.80.
  2. Debit Accounts Receivable—Regional $172.80; debit Credit Card Expense $7.20 and credit Sales $180.

Debit Cash of $180 and credit Sales $180.

• 1. Debit Cash $172.80; debit Credit Card Expense $7.20 and credit Sales $180.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card. National Bank deducts a 3% service charge for sales on its credit cards. Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record the collection from the credit card company would be:
   1. Debit Accounts Receivable—National $582; debit Credit Card Expense $18 and credit Sales

$600.

Debit Cash of $618; credit Credit Card Expense $18 and credit Sales $600.

• 1. Debit Cash of $618 and credit Accounts Receivable—National $618.
  2. Debit Cash $582 and credit Sales $582.
  3. Debit Cash $582; debit Credit Card Expense $18 and credit Sales $600.

Learning Objective: 09-C1 Describe accounts receivable and how they occur and are recorded. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security. Which of the following is true regarding this transaction:

First City Bank is the factor in this transaction.

• 1. First City Bank takes ownership of the receivables at the time of the pledge.
  2. Frederick Company no longer has the risk of bad debts.
  3. Frederick Company's financial statements must disclose the pledging of receivables.
  4. No journal entry is required for this event.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

1. 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?

Debit Accounts Receivable $7,200; credit Allowance for Doubtful Accounts $7,200.

• 1. Debit Accounts Receivable $7,200; credit Notes Receivable $7,200.
  2. Debit Bad Debt Expense $7,344; credit Notes Receivable $7,344.
  3. Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable

$7,200.

• 1. Debit Accounts Receivable $7,056; debit Interest Revenue $144; credit Notes Receivable

$7,200.

Learning Objective: 09-P4 Record the honoring and dishonoring of a note and adjustments for interest. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

1. Match each of the following terms with the appropriate definitions.
2. Maker of a note
3. Bad debts
4. Aging of accounts receivable
5. Interest
6. Promissory note
7. Payee of a note
8. Accounts receivable
9. Allowance for doubtful accounts
10. Realizable value
11. 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.

Learning Objective: 09-C1; 09-C2; 09-P2; 09-P3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Match each of the following terms with the appropriate definitions.
2. Allowance method
3. Installment accounts receivable
4. Principal of a note
5. Full disclosure principle
6. Materiality constraint
7. Direct write-off method
8. Dishonoring a note
9. Accounts receivable turnover
10. Factoring accounts receivable
11. Pledging accounts receivable

_____ 1. A measure of both the quality and liquidity of accounts receivable that indicates how often, on average, receivables are received and collected during the period.

_____ 2. Amounts owed by customers from credit sales for which payment is required in periodic payments over an extended period of time.

_____ 3. The accounting constraint that states that an amount can be ignored if its effect on the financial statements is unimportant to its users.

_____ 4. Refers to a note maker's inability or refusal to pay a note at maturity.

_____ 5. A method of accounting for bad debts that matches the estimated loss from uncollectible accounts receivable against the sales they helped to produce.

_____ 6. Selling all or a portion of accounts receivable to a finance company or bank.

_____ 7. The accounting principle that requires financial statements (including the notes) to report all relevant information about operations and financial condition.

_____ 8. Committing accounts receivable as security for a loan.

_____ 9. A method of accounting for bad debts that records the loss from an uncollectible account receivable immediately upon determining it is uncollectible.

_____ 10. The amount that the signer of a note agrees to pay back when the note matures, not including interest.

Learning Objective: 09-A1; 09-C1; 09-C2; 09-C3; 09-P1; 09-P2; 09-P4

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

ESSAY QUESTIONS

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

Learning Objective: 09-C1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

Learning Objective: 09-C2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

Explain the options a company may use to convert its receivables to cash before they are due.

Learning Objective: 09-C3 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

Learning Objective: 09-A1

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Risk Analysis

1. Describe the differences in how the direct write-off method and the allowance method are applied in accounting for uncollectible accounts receivables.

Learning Objective: 09-P1; 09-P2

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The allowance method of accounting for bad debts requires an estimate of bad debt expense at the end of each accounting period. The two common methods to determine the estimate amount are the percent of sales method and the percent of receivables method. Explain the basic differences between the two methods.

Learning Objective: 09-P3

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain how to record the receipt (acceptance) of a note receivable.

Learning Objective: 09-C2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain the difference between honoring and dishonoring a note receivable.

Learning Objective: 09-P4 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

Learning Objective: 09-A1

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. 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, less a 2.5% service charge. Assume that on April 13, the company sold $20,000 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.

Learning Objective: 09-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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.

Learning Objective: 09-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Mercks uses the perpetual inventory system, and accepts the Discovery credit card for credit card sales. Discovery charges Mercks a 3% fee, and all credit card receipts deposited are credited to the company account on the day of deposit. Prepare journal entries to record the following transaction.

March 11 Sold merchandise for $4,500 (that had cost $2,100) and accepted the customer's Discovery card.

Learning Objective: 09-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Woods Co. uses a perpetual inventory system, and accepts the World Express credit card from its customers. World Express charges a 3.5% service fee and all credit card receipts deposited are credited to the company account on the day of deposit. On February 28, Woods sold $24,000 worth of merchandise to customers (that had cost $14,400) using the World Express charge card. Prepare the journal entries to record February 28 sales.

Learning Objective: 09-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

What is the maturity date of a 120-day note receivable dated March 5?

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

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

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Calculate the amount of interest that would be owed on a $18,000, 60-day, 8% note receivable at maturity.

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

ESSAY QUESTIONS

1. If a 90-day note receivable is dated July 12, what is the maturity date of the note?

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

If a 60-day note receivable is dated September 22, what is the maturity date of the note?

Learning Objective: 09-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

ESSAY QUESTIONS

1. On May 31, a company had a balance in its accounts receivable of $103,200. Prepare journal entries to record the following transactions for June. Assume the company uses a perpetual inventory system.

June 2 Sold merchandise on account, $12,000. The cost of the merchandise was $7,200. June 8 Sold $15,000 worth of accounts receivable to First Bank. First Bank charged a 4% factoring fee.

June 20 Borrowed $30,000 cash from Second National Bank, pledging $31,500 worth of accounts receivable as collateral for the loan.

Learning Objective: 09-C3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Orman Co. sold $80,000 of accounts receivable to First Savings and incurred a 3% factoring fee. Prepare the journal entry for Orman Co. to record the sale.

Learning Objective: 09-C3 Explain how receivables can be converted to cash before maturity. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Flax had net sales of $7,875 and its average accounts receivables is $1,250. Calculate Flax's accounts receivable turnover:

Learning Objective: 09-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Risk Analysis

1. Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its competitor, Stanley, had net sales of $290,000 and average accounts receivables of $61,350. Calculate the accounts receivable turnover for both companies. Which company is doing a better job of managing its accounts receivables?

Learning Objective: 09-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB Critical Thinking; FN Risk Analysis

1. A company reports the following results in its financial statements:

Year 3 Year 2 Year 1

Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these two results and give a possible explanation for any significant change.

Learning Objective: 09-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

1. The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred:

Sept 7 Links Company determined that the $8,000 account receivable of the Rainier Company was uncollectible, and wrote it off.

Oct 15 Links Company determined that the $3,500 account receivable of the Olympic Company was uncollectible and wrote it off.

Nov 9 Rainier Company paid $6,000 of the amount owed to the Links

Company. Links Company does not expect further collections from the Rainier Company.

Dec 31 Links Company estimates that 1% of its $1,900,000 of credit sales would be uncollectible.

1. Prepare the general journal entries to record these transactions.
2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Lily Company uses the percent of receivables method of accounting for uncollectible accounts receivable., and a perpetual inventory system. As of January 1, its net accounts receivable totaled

$192,000 (Accounts Receivable $200,000 less an $8,000 Allowance for Doubtful Accounts). During the current year, the following transactions occurred.

1. Merchandise costing $1,050,000 was sold on account for $1,400,000.
2. The company collected $1,294,000 from customers on account.
3. $6,000 of accounts receivable were deemed uncollectible and written off.
4. $1,000 of accounts receivable previously written off as uncollectible were recovered.
5. At year-end, Lily Company estimates that 4% of its accounts receivable are uncollectible.

Prepare journal entries to record these transactions.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Tulip Company uses the percent of receivables method of accounting for uncollectible accounts receivable, and a perpetual inventory system. As of January 1, its net accounts receivable totaled $485,000 (Accounts Receivable $500,000 less a $15,000 Allowance for Doubtful Accounts). During the current year, the following transactions occurred.
2. Merchandise costing $2,400,000 was sold on account for $4,000,000.
3. The company collected $3,880,000 from customers on account.
4. $20,000 of accounts receivable were deemed uncollectible and written off.
5. $3,000 of accounts receivable previously written off as uncollectible were recovered.
6. At year-end, Lily Company estimates that 3% of its accounts receivable are uncollectible.

Prepare journal entries to record these transactions.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The Branson Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred:

Mar 7 Branson Company determined that the $2,000 account receivable of the Bing Company was uncollectible, and wrote it off.

Jun 9 Bing Company paid $1,500 of the amount owed to the Branson Company. Branson Company does not expect further collections from the Bing Company.

Dec 31 Branson Company estimates that 1.5% of its $900,000 of credit sales will be uncollectible.

Prepare the general journal entries to record these transactions.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Thatcher Company had a January 1, credit balance in its Allowance for Doubtful Accounts of

$4,000 for the current year. The following transactions and events affected the Allowance for Doubtful Accounts during the current year:

Apr 15 Bean's account receivable of $2,700 was deemed uncollectible.

July 1 Cho paid the full amount of a previously written-off account receivable. This receivable of

$1,300 had been written off in the prior year.

Dec 31 Bad debts expense of $4,500 was recorded.

What amount should appear in the allowance for doubtful accounts in the December 31, balance sheet for the current year?

Learning Objective: 09-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Owens Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the Valley Company. On August 8, Year 2, after numerous attempts to collect the account, Owens determined that the account of the Valley Company was uncollectible.
2. Prepare the journal entry required to record the transactions on August 8.
3. Assuming that the $6,300 is material, explain how the direct write-off method violates the expense recognition (matching) principle in this case.

Learning Objective: 09-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; BB Critical Thinking; FN Measurement

1. At December 31 of the current year, a company reported the following:

Total sales for the current year: $980,000 includes $160,000 in cash sales Accounts receivable balance at Dec. 31, end of current year: $160,000

Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300 credit Bad debts written off during the current year: $5,800.

Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 5% of accounts receivable.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. At December 31 of the current year, a company reported the following: Total sales for the current year: $980,000 includes $160,000 in cash sales Accounts receivable balance at Dec. 31, end of current year: $160,000

Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300 Bad debts written off during the current year: $5,800.

Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 1.5% of credit sales:

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company has the following unadjusted account balances at December 31, of the current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end:

1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year .

• 1. Bad Debts Expense 7,365 Allowance for Doubtful Accounts 7,365

Diff: 3

Desired balance in allowance account: $ 8,965 credit Current balance in allowance account: 1,600 credit Amount of adjustment $ 7,365 credit

Topic: Estimate uncollectible accounts receivable — based on receivables Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company has the following unadjusted account balances at December 31, of the current year; Accounts Receivable of $183,400 and Allowance for Doubtful Accounts of $1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end:

Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, of the current year, balance sheet.

Diff: 2

Topic: Estimate uncollectible accounts receivable — based on receivables Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

Debit Credit

Prepare the adjusting entry to estimate bad debts assuming an aging analysis estimates that 8% of the outstanding accounts receivable will be uncollectible.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

Debit Credit

Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of credit sales.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following:

Required:

1. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet.
2. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was $41,000 and that accounts receivable written off during the current year totaled $43,200.
3. Prepare the adjusting entry to record bad debts expense on December 31 of the current year.
4. Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31.

Diff: 3

Topic: Estimate uncollectible accounts receivable — based on receivables Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On December 31, of the current year, Spectrum Company's unadjusted trial balance revealed the following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on credit), and Allowance for Doubtful Accounts of $1,600 (credit balance).

Prepare the adjusting journal entry to record Spectrum's estimate for bad debts assuming:

1. 6.0% of the accounts receivable balance is assumed to be uncollectible.
2. Bad debts expense is estimated to be 1.5% of credit sales.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the balance sheet after adjustment assuming the percentage of sales method is used.
4. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
5. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the

balance sheet immediately after writing off the account in part 4 assuming the percentage of sales method is used.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Each December 31, Kimura Company ages its accounts receivable to determine the amount of its adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts account had a debit balance of $1,200 before any year-end adjustment for bad debts. Prepare the adjusting journal entry that Kimura Company should make on December 31, of the current year, to estimate bad debts expense.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. A company that uses the percent of sales to account for its bad debts had credit sales of $740,000 in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company wrote off, as uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2, Marshall Fresh unexpectedly paid his account in full. Prepare the necessary journal entries:
2. On December 31, Year 1, to reflect the estimate of bad debts expense.
3. On June 1, Year 2, to write off the bad debt.
4. On December 21, Year 2, to record the unexpected collection.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The following series of transactions occurred during Year 1 and Year 2, when Foxworth

Co. sold merchandise to Kevin Lewis. Foxworth's annual accounting period ends on December 31.

10/01/Yr 1 Sold $12,000 of merchandise to K. Lewis, terms 2/10, n/30.

11/15/Yr 1 Lewis reports that he cannot pay the account until early next year. He agrees to exchange the account for a 120-day, 12% note receivable.

12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note.

03/15/Yr 2 Foxworth receives a check from Lewis for the maturity value (with interest) of the note. 03/22/Yr 2 Foxworth receives notification that Lewis' check is being returned for nonsufficient funds (NSF).

12/31/Yr 2 Foxworth writes off Lewis' account as uncollectible.

Prepare Foxworth Co.'s journal entries to record the above transactions. The company uses the

allowance method to account for its bad debt expense.

Learning Objective: 09-C1; 09-C2; 09-P2; 09-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Prepare general journal entries for the following transactions of Norman Company, assuming they use the allowance method to account for uncollectible accounts.

Apr 01 Sold $3,500 of merchandise to Lance Co., receiving an 8%, 90-day, $3,500 note.

15 Wrote off $1,500 owed by Guy Co. from a previous period sale.

30 Received a $5,000, 6%, 30-day note receivable from James Co. as settlement for its $5,000 account receivable.

May 30 The note received from James on April 30 was collected in full. Jun 30 Lance Co. was unable to pay the note on the due date.

Jul 15 Guy Co. paid $1,000 of the amount written off on April 15.

Diff: 3

Topic: Accounts Receivable; Notes Receivable; Valuing Accounts Receivable–Allowance Method; Valuing and Settling Notes Learning Objective: 09-C1; 09-C2; 09-P2; 09-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. 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:
2. Note is held until maturity and collected in full at that time.
3. Note is dishonored; the amount of the note and its interest are written off as uncollectible.

Learning Objective: 09-C2; 09-P2; 09-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. Prepare general journal entries for the following transactions for the current year:

Apr. 25 Sold $4,500 of merchandise to Dunn Corp., receiving a 10%, 60-day. $4,500 note receivable.

June 24 The note of Dunn Corp., received on April 25 was dishonored.

Learning Objective: 09-C2; 09-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The following data are taken from the comparative balance sheets of Grayling Company. Compute and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How is the company doing in relation to its competitors?

Learning Objective: 09-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB Critical Thinking; FN Risk Analysis

1. On July 31, Orwell Co. has $448,800 of accounts receivable. Required:
2. Prepare journal entries to record the following selected August transactions. The company uses the perpetual inventory system.
3. Also prepare any footnotes to the August 31 financial statements that result from these transactions.
4. Calculate the balance in the Accounts Receivable account as of August 10.

Aug 3 Sold $250,000 of merchandise (that cost $122,000) to customers on credit.

Aug 5 Sold $300,000 of accounts receivable to Cash Solutions. Cash Solutions charges a 7% factoring fee.

Aug 8 Received $165,200 from customers in payment on their accounts.

Aug 9 Borrowed $50,000 cash from State Bank, pledging $65,000 of accounts receivable as security for the loan. The note is a 90-day, 9% note.

Learning Objective: 09-C1; 09-C3

Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement; FN Reporting

1. On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $13,750.
2. Prepare journal entries to record the following selected October transactions. The company uses the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its October 31 balance sheet.
   1. Sold $305,000 of merchandise (that cost $178,500) to customers on credit.
   2. Received $395,100 cash in payment of accounts receivable.
   3. Wrote off $15,700 of uncollectible accounts receivable.
   4. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

Learning Objective: 09-C1; 09-P2; 09-P3 Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement; FN Reporting

1. Bonita Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

1. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method.
2. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit.
3. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of

$14,250.

1. Prepare journal entries to record the following selected May transactions. The company uses the perpetual inventory system.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet.
   1. Sold $415,200 of merchandise (that cost $249,000) to customers on credit.
   2. Received $465,800 cash in payment of accounts receivable.
   3. Wrote off $15,800 of uncollectible accounts receivable.
   4. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

Learning Objective: 09-P3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. At December 31, Yarrow Company reports the following results for its calendar year from the adjusted trial balance.

1. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.1% of credit sales.
2. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be .8% of total sales.
3. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 7.0% of year-end accounts receivable.

Learning Objective: 09-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. White Company allows customers to make purchases on credit. The terms of all credit sales are 2/10, n/30, and all sales are recorded at the gross price. Other customers can use a bank credit card where the bank deducts a 4% service charge for credit card sales and credits the bank account of White immediately when credit card receipts are deposited. White uses the perpetual inventory method. Prepare journal entries to record the following selected transactions and events.

Learning Objective: 09-C1; 09-C2; 09-P2; 09-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

1. A supplementary record created to maintain a separate account for each customer is called the

________.

Learning Objective: 09-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. A ________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.

Learning Objective: 09-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

The person to whom a note is payable is known as the .

Learning Objective: 09-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

________ is the charge for using borrowed money until its due date.

Learning Objective: 09-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

The ________ of a note is the day the principle plus interest of a note must be repaid.

Learning Objective: 09-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Converting receivables to cash before they are due is usually done by either (1) or (2)

________.

Learning Objective: 09-C3 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The accounts receivable turnover is calculated by dividing ________ by ________.

Learning Objective: 09-A1

Bloom's: Remember AACSB: Communications

AICPA: BB Industry; FN Risk Analysis

1. The________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before).

Learning Objective: 09-P1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. ________ are amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.

Learning Objective: 09-C1 Bloom's: Remember AACSB: Communications

AICPA: BB Industry; FN Decision Making

1. 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.

Learning Objective: 09-P2

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

1. The ________ method of computing uncollectible accounts uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

Learning Objective: 09-P3

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The ________ methods of computing uncollectible accounts use balance sheet relations to estimate bad debts–mainly the relation between accounts receivable and the allowance amount.

Learning Objective: 09-P3

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. The ________ method uses both past and current receivables to estimate the allowance amount, and assumes that the longer an amount is past due, the more likely it is to be uncollectible.

Learning Objective: 09-P3

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

1. 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 $ ________.

Learning Objective: 09-C2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

When the maker of a note is unable or refuses to pay at maturity, the note is said to be ________.

Learning Objective: 09-P4 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

refers to the expected proceeds from converting an asset into cash.

Learning Objective: 09-P2

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement