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Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

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Question 121

Multiple Choice

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Interest Receivable:

A) is an asset reported on the balance sheet.
B) is a temporary account reported on the income statement.
C) is a permanent account reported on the income statement.
D) represents the amount of interest the company has received on promissory notes.

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Question 122

Multiple Choice

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Best,Inc.loaned $100,000 for three months on November 1 to one of its customers at the rate of 6%.The principal amount of the loan plus interest is due on the following February 1.Which of the following is the adjusting journal entry that will be recorded on December 31?

A) Debit Cash and credit Interest Revenue for $4,000
B) Debit Interest Receivable and credit Interest Revenue for $4,000
C) Debit Interest Receivable and credit Interest Revenue for $1,000
D) Debit Interest Receivable and credit Interest Revenue for $500

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Question 123

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Wasco Company has experienced bad debt losses of 5% of credit sales in prior periods.At the end of the year,the balance of Accounts Receivable is $100,000 and the Allowance for Doubtful Accounts has an unadjusted credit balance of $500.Net credit sales during the year were $150,000.Using the percentage of credit sales method,what is the estimated Bad Debt Expense for the year?

The Dubious Company operates in an industry where all sales are made on account.The company has experienced bad debt losses of 1% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years. Required: Part a.Calculate Bad Debt Expense and net income for each of the three years,assuming uncollectible accounts are estimated as 1.0% of sales. Part b.Briefly describe the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3. Part c.Assume that the company changes its estimate of uncollectible credit sales to 1.0% in Year 1,2.0% in Year 2 and 1.5% in Year 3.Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario. Part d.Briefly describe the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2 to Year 3. Part e.Explain some of the factors that might cause the estimate of uncollectible accounts to vary from year to year (as in the assumption set forth in part c above).

The potential disadvantages of extending credit include all of the following except:

The challenge businesses face when estimating the allowance for previously recorded sales is that:

PayPal and national credit card companies charge Abbigail Company a 3% fee for their services.Abbigail Company's net sales revenue was $10,000 on the last weekend of November.How much cash will be deposited into Abbigail's bank account as a result of these sales?

The write-off of a specific customer account receivable involves decreasing an asset account and:

Match the term and its definition.There are more definitions than terms. Terms 1____ .Promissory Note 2____ .Net Accounts Receivable 3____ .Bad Debt Expense 4____ .Maturity Date 5____ .Days to Collect 6____ .Accounts Receivable 7____ .Allowance For Doubtful Accounts 8____ .Receivables Turnover Definitions A.The time at which a loan must be repaid. B.A financial statement that shows the calculation of Bad Debt Expense for a company. C.Total money owed the company for sales made on credit. D.Net credit sales revenue divided by the net income. E.An agreement by a borrower to repay the lending company with interest during a specified time period. F.The time at which a borrower must make annual interest payments. G.A contra-asset account. H.The days of the year divided by the receivables turnover ratio. I.The portion of Accounts Receivable that the company expects to collect. J.An account that is debited for the amount of credit sales estimated as uncollectible. K.Net credit sales revenue divided by the average net receivables. L.The days of the year divided by the net sales revenue.

The Allowance for Doubtful Accounts: