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Exam 7: Accounting for Receivables

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Question 31

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Indicate whether each of the following statements is true or false.

Premises

Responses

In a promissory note,the payee issues the note to the maker.

False

The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.

True

Interest rates are always stated on an annual basis,regardless of the length of the note.

Loaning cash to another company is considered a financing activity on the statement of cash flows.

Accruing interest on a note receivable is considered an asset use transaction.

Premises

In a promissory note,the payee issues the note to the maker.

The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.

Interest rates are always stated on an annual basis,regardless of the length of the note.

Loaning cash to another company is considered a financing activity on the statement of cash flows.

Accruing interest on a note receivable is considered an asset use transaction.

Responses

False

True

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Correct Answer

Premises

Responses

In a promissory note,the payee issues the note to the maker.

The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.

Interest rates are always stated on an annual basis,regardless of the length of the note.

Loaning cash to another company is considered a financing activity on the statement of cash flows.

Accruing interest on a note receivable is considered an asset use transaction.

Premises

In a promissory note,the payee issues the note to the maker.

The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest.

Interest rates are always stated on an annual basis,regardless of the length of the note.

Loaning cash to another company is considered a financing activity on the statement of cash flows.

Accruing interest on a note receivable is considered an asset use transaction.

Responses

Question 32

Multiple Choice

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Which of the following is (are) the term(s) used to describe the person responsible for making payment on the due date of a promissory note?

A) Lender or maker
B) Maker or debtor
C) Borrower
D) Borrower or maker or debtor

Correct Answer

verified

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Question 33

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Indicate whether each of the following statements is true or false.

[The following information applies to the questions displayed below.] The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. -The balance in Accounts Receivable at the beginning of the year amounted to $16,000.During the year,$64,000 of credit sales were made to customers.If the ending balance in Accounts Receivable amounted to $10,000,and uncollectible accounts expense amounted to $4,000,what is the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement?

Willis Company had $200,000 in credit sales for Year 1,and it estimated that 2% of the credit sales would not be collected.The balance in Accounts Receivable at the end of the year was $38,000.Willis had never used the allowance method to account for its receivables until Year 1.The net realizable value of its accounts receivable at the end of the year was $34,000.

If a company estimates uncollectible accounts based on a percentage of receivables,the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -Which of the following describes the effects of writing off the uncollectible accounts?

What is the effect of recognizing $7,500 of uncollectible accounts expense under the direct write-off method?

Which of the following businesses would most likely have the longest operating cycle?

Chadwick Company's sales for Year 1 were $8,700,000.The ending balance of accounts receivable was $801,000 at the end of the year.During Year 1,Chadwick collected $8,400,000 on its accounts receivable.The accounts receivable turnover ratio for the year was 10.5.

The best estimate of the amount of cash a company expects to collect from its accounts receivable is the face value of the receivables.

How does the year-end adjustment to recognize uncollectible accounts expense affect the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -What effect will recognizing the uncollectible accounts expense for Year 2 have on the elements of the financial statements?

Indicate whether each of the following statements is true or false.

Which of the following is not a significant difference between the allowance method and the direct write-off method?

Hancock Medical Supply Co.,earned $160,000 of revenue on account during Year 1,its first year of operation.During Year 1,Hancock collected $128,000 of cash from its receivables accounts.The company did not write-off any uncollectible accounts.It estimates that it will be unable to collect 1% of revenue on account.What is the net realizable value of receivables that will be reported on the balance sheet at December 31,Year 1?

Indicate whether each of the following statements is true or false.

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -What is the amount of uncollectible accounts expense that will be reported on the Year 2 income statement?

When a company accepts a credit card payment for a sale,the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.

The operating cycle is the average time that a company spends acquiring inventory to sell.