Exam 7: Reporting and Analyzing Receivables

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:

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

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

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

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

The banker's rule simplifies interest computations by treating a year as having 360 days.

Explain the difference between honoring and dishonoring a note receivable.

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:

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 $100,000; Allowance for Doubtful Accounts,credit balance of $600; credit sales of $420,000.What amount should be debited to Bad Debts Expense,assuming 1% of credit sales are estimated to be uncollectible?

On June 20 of the prior year,a company determined that a customer's account receivable was uncollectible and that the account should be written off.Unexpectedly,on September 1 of the current year,the customer paid the account in full.Assuming the allowance method is used to account for bad debts,what effect will this recovery have on the company's net income and total assets?

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

A company factored $40,000 of its accounts receivable and was charged a 1% factoring fee.The journal entry to record this transaction would include a debit to Cash of $39,600,a debit to Factoring Fee Expense of $400,and credit to Accounts Receivable of $40,000.

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

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

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.

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?

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; credit sales of $420,000.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 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.

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

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.)