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

On average, 5% of credit sales has been uncollectible in the past. 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, the estimated bad debt expense would be:

At the end of the first year, the Treadwell Tire Company had net accounts receivable of $67,900 and at the end of the second year the company had net accounts receivable of $72,400. If the company's net sales revenue during the second year was $876,875, the receivables turnover ratio for the second year was:

For each of the following transactions, indicate how each will affect the elements of the accounting equation by answering increase, decrease or no effect. a. The company uses the allowance method and writes off specific receivables that have been identified as uncollectible. b. The company uses the allowance method and records the bad debts expense for the year. c. The company receives a 1-year promissory note from a customer in payment of his account because he needs additional time to pay. d. The company receives a payment from a customer on his account which had been previously written off as worthless. e. The company accrues interest earned on the note received in (c).

The days-to-collect measure is calculated as:

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000. In addition, the records show the following: What was the amount of Bad Debt Expense for the year?

Momentum Products Inc., just recorded an adjusting journal entry for the current year's estimate of bad debts. Assuming all else is equal, this adjusting journal entry will cause:

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. According to the revenue recognition principle and the matching principle, the company should:

Total doubtful accounts at the end of the year are estimated to be $25,000 based on an aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what will be the amount of bad debt expense recorded for the period?

If a company factors its receivables, its receivables turnover ratio will be lower than it would have been if the receivables had not be factored.

The direct write-off method is a method of accounting for bad debts that is approved by the IRS.

What is the amount of current assets on the balance sheet at December 31, 2011?

When the allowance method is used, the entry to record the write-off of specific uncollectible accounts would decrease

Your company has net sales of $468,300 and average trade receivables of $111,500 for the year. Which of the following is true?

The direct write-off method

The process of using accounts receivable as security for a loan is called factoring.

The direct write off method is better than the allowance method because it is more consistent with the conservatism principle.

What is the amount due on the maturity date of a $5,000, 3-month, 10% note receivable?

Which of the following is true?

In the interest formula, the interest rate is on a(n) basis; therefore, the time variable must reflect how many out of in the interest period.

On December 1, 2010, a company accepted a $6,000, 9%, 3-month note from a customer in payment of his overdue account. The company prepares year-end financial statements on December 31. What entry should the company make on March 1, 2011, when the note and interest are paid?