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Exam 7: Accounting for Receivables

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Question 21

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

A) That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.
B) The use of the direct write-off method for bad debts.
C) The use of the allowance method of accounting for bad debts.
D) That bad debts be disclosed in the financial statements.
E) That bad debts not be written off.

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Question 22

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A receivable is an amount due from another party.

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Question 23

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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 $ ________.

Match each of the following terms with the appropriate definitions. -A method of accounting for bad debts that records the loss from an uncollectible account receivable immediately upon determining it is uncollectible.

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.

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: $\begin{array} { l l l } &&\text { Estimated } \\&&\text { Uncollectible } \\\text { Account Age }&\text { Balance }&\text { Percentage }\\\hline \text { Current (not yet due) } & \$ 96,000& 1.0 \% \\\text { 1-30 days past due } &6 4 , 0 0 0 & 2.5 \% \\\text { 30-60 days past due } &16,000& 11.0 \% \\61 - 90 \text { days past due } & 6,500 & 37.0 \% \\\text { Over 90 days past due } &3 , 2 0 0 & 70.0 \% \\\text { Total } & \underline { \$185,700 } &\end{array}$ 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 .

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: $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \\\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \\\hline \text { Net Sales } & 2,100,000 & \text { Credit }\\\hline\end{array}$ 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?

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

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

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

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:

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.)

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

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.

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.)

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.)

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

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

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

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