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Exam 8: Reporting and Analyzing Receivables

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Question 1

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Other receivables include non-trade receivables such as loans to company officers.

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Question 2

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Match the items below:

Premises

Responses

Sales that involve the customer, the retailer, and the credit card issuer.

Cash net realizable value

The net amount expected to be received in cash.

Direct write-off method

Emphasizes expected cash realizable value of accounts receivable.

Dishonored note

Analysis of customer account balances by length of time they have been unpaid.

Promissory note

Bad debt losses are not estimated and no allowance account is used.

Credit card sales

Notes and accounts receivable that result from sales transactions.

Percentage of receivables basis

A written promise to pay a specified amount on demand or at a definite time.

Obligation due

A measure of the liquidity of receivables.

Accounts receivable turnover

A note which is not paid in full at maturity.

Trade receivables

Aging the accounts receivable

Premises

Sales that involve the customer, the retailer, and the credit card issuer.

The net amount expected to be received in cash.

Emphasizes expected cash realizable value of accounts receivable.

Analysis of customer account balances by length of time they have been unpaid.

Bad debt losses are not estimated and no allowance account is used.

Notes and accounts receivable that result from sales transactions.

A written promise to pay a specified amount on demand or at a definite time.

A measure of the liquidity of receivables.

A note which is not paid in full at maturity.

Responses

Cash net realizable value

Direct write-off method

Dishonored note

Promissory note

Credit card sales

Percentage of receivables basis

Obligation due

Accounts receivable turnover

Trade receivables

Aging the accounts receivable

Correct Answer

Premises

Responses

Sales that involve the customer, the retailer, and the credit card issuer.

Credit card sales

The net amount expected to be received in cash.

Cash net realizable value

Emphasizes expected cash realizable value of accounts receivable.

Percentage of receivables basis

Analysis of customer account balances by length of time they have been unpaid.

Aging the accounts receivable

Bad debt losses are not estimated and no allowance account is used.

Direct write-off method

Notes and accounts receivable that result from sales transactions.

Trade receivables

A written promise to pay a specified amount on demand or at a definite time.

Promissory note

A measure of the liquidity of receivables.

Accounts receivable turnover

A note which is not paid in full at maturity.

Dishonored note

Premises

Sales that involve the customer, the retailer, and the credit card issuer.

The net amount expected to be received in cash.

Emphasizes expected cash realizable value of accounts receivable.

Analysis of customer account balances by length of time they have been unpaid.

Bad debt losses are not estimated and no allowance account is used.

Notes and accounts receivable that result from sales transactions.

A written promise to pay a specified amount on demand or at a definite time.

A measure of the liquidity of receivables.

A note which is not paid in full at maturity.

Responses

Credit card sales

Cash net realizable value

Percentage of receivables basis

Aging the accounts receivable

Direct write-off method

Trade receivables

Promissory note

Accounts receivable turnover

Dishonored note

Question 3

True/False

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Bad debt expense and interest revenue are reported in the income statement under other revenues and expenses.

The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debt adjusting entry is recorded.

If bad debt losses are significant, the direct write-off method is acceptable for financial reporting purposes.

Hess Computer Store has credit sales of $450,000 in 2013 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2013, $130,000 of accounts receivable remain uncollected. The credit manager of Hess prepared an aging schedule of accounts receivable and estimates that $7,800 will prove to be uncollectible. On March 4, 2014 the credit manager authorizes a write-off of the $1,000 balance owed by A. Myers. Instructions (a) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2013. (b) Show the balance sheet presentation of accounts receivable on December 31, 2013. (c) On March 4, before the write-off, assume the balance of Accounts Receivable account is $145,000 and the balance of Allowance for Doubtful Accounts is a credit of $5,000. Make the appropriate entry to record the write off of the Myers account. Also show the balance sheet presentation of accounts receivable before and after the write-off.

Merry Co. sells Christmas angels. Merry determines that at the end of December, they have the following aging schedule of Accounts Receivable: Compute the net receivables based on the above information at the end of December (There was no beginning balance in the Allowance for Doubtful Accounts).

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

A note receivable is executed in December. When the note is paid the following February, the payee's entry includes (assuming a calendar-year accounting period and no reversing entries) a

The following are sales of The Holiday Store during February. The Store sells seasonal holiday items. 2/3 Sold 50 heart balloons for $5 cash each. 2/8 Sold 100 boxes of chocolates at $10 each, terms 2/10, n/30. Collected within the discount period. 2/10 Sold 50 heart necklaces for $25 each with no discount. Have not collected as of month end. 2/14 Sold 100 bouquets of roses at $30 per bouquet. Half the sales were on account. By month end, 75% of the credit sales were collected. 2/27 Sold 20 leftover heart necklaces to a discount store for $15 each on credit. 2/28 Sold a display cabinet at a swap meet for $100 on account. Determine the balance in Accounts Receivable at 2/28.

Barber Company lends Monroe Company $30,000 on April 1, accepting a four-month, 6% interest note. Barber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $30,000. If the balance of the Allowance for Doubtful Accounts is $4,000 debit before adjustment what is the balance after adjustment?

Three accounting issues associated with accounts receivable are

List the characteristics of promissory notes. b. List the reasons for obtaining promissory notes from customers. c. What action relating to promissory notes must be taken at the end of the accounting period? 1. Promissory notes give the holder stronger legal claims to assets than accounts receivable, thus they are preferable if the maker declares bankruptcy. 2. Promissory notes have definite due dates and bear interest at a stated rate. 3. Promissory notes are formal promises to pay. (b) Reasons for obtaining promissory notes from customers include a. List the characteristics of promissory notes. b. List the reasons for obtaining promissory notes from customers. c. What action relating to promissory notes must be taken at the end of the accounting period?

Which of the following would probably be the most significant type of a claim held by a company?

Which board(s) has(have) faced bitter opposition when working to implement fair value measurement for financial instruments?

The interest rate for a three-month loan would normally be stated in terms of which of the following rates of interest?

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the amount of bad debt expense for that period?

Your friend Mark has opened an office supply store. He will extend open credit to local businesses and is concerned about potential bad debts. What can Mark do to reduce potential bad debts?

Under the direct write-off method of accounting for uncollectible accounts