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

A company lends a major client $90,000 for one year at a 7% annual interest rate. Interest payments are t o be made twice a year but the company wants to recognize interest earned on a monthly basis. On a month in which the company does not receive any interest payments, interest is recorded with:

The entry made by the company to record this loan to the employee will include a:

The allowance method is used for accounts receivable but not for notes receivable.

If a company is overly optimistic about debt collection, the company will understate bad debt expense and:

Adventure Company uses the aging of accounts receivable method to estimate bad debt expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, 2011, the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit), and the total amounts receivable in each category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31, 2011, and prepare the appropriate bad debt expense adjusting entry at December 31, 2011.

Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category but now forecasts 18% in this category. You use the aging of accounts receivable method of estimating bad debt expense. If the total of credit sales remains unchanged from previous months and no write offs are made, the estimate of bad expense based on the new forecast will:

The amount of uncollectible accounts at the end of the year is estimated to be $25,000, using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. What should the account balance in the Allowance for Doubtful Accounts be after adjustment?

The beginning credit balance in the allowance for doubtful accounts is $12,656 and the ending credit balance is $14,348. If bad debt expense was $3,879, which of the following statements is true?

In normal circumstances, the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.

The direct write-off method:

If the receivables turnover ratio rises significantly, the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

Credit sales are recorded by crediting an accounts receivable for a specific customer.

The receivables turnover ratio is calculated as:

Pepsi had an accounts receivable turnover ratio of 9.9 this year and 11.0 last year. Coke had a turnover ratio of 9.3 this year and 9.3 last year. This implies

Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category. All else equal, using the aging of accounts receivable method, the amount of the bad debt adjustment will:

As of December 31, Frappa Company has a balance of $5,000 in accounts receivable. Of this amount, $500 is past due and the remainder is not yet due. Frappa has a credit balance of $45 in the allowance for doubtful accounts. Frappa Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts. How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?

When the allowance method is used, a write-off of a specific account will not change the amount of net accounts receivable.

Which of the following statements regarding allowance for doubtful accounts is true?

The days to collect increases from 32 to 48. Which of the following statements is true?

What was the amount of cash collections from accounts receivable customers this year?