Question 1

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

Accepted Answer

A)  increased bad debt costs. 
B)  customers buying too much. 
C)  the need to hire employees to undertake collection efforts. 
D)  higher wage costs in the accounting department. 
A)  increased bad debt costs. 
B)  customers buying too much. 
C)  the need to hire employees to undertake collection efforts. 
D)  higher wage costs in the accounting department.

Question 2

Interest Receivable:

Accepted Answer

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. 
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.

Question 3

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?

Accepted Answer

A)  $5,000 
B)  $7,000 
C)  $7,500 
D)  $8,000 
A)  $5,000 
B)  $7,000 
C)  $7,500 
D)  $8,000

Question 4

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

Accepted Answer

A)  increasing an expense account 
B)  decreasing a liability account 
C)  decreasing a revenue account 
D)  increasing a contra-asset account 
A)  increasing an expense account 
B)  decreasing a liability account 
C)  decreasing a revenue account 
D)  increasing a contra-asset account

Question 5

The Allowance for Doubtful Accounts:

Accepted Answer

A)  is a contra-revenue account. 
B)  has a normal debit balance. 
C)  is not listed on the chart of accounts of a company that uses the direct write-off method. 
D)  is reported on the Income Statement. 
A)  is a contra-revenue account. 
B)  has a normal debit balance. 
C)  is not listed on the chart of accounts of a company that uses the direct write-off method. 
D)  is reported on the Income Statement.

Question 6

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).

Accepted Answer

Part a
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Part b
Net income increased fr

Question 7

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.

Accepted Answer

1.E
2.I
3.

Question 8

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?

Accepted Answer

A)  $30 
B)  $9,700 
C)  $10,000 
D)  $10,030 
A)  $30 
B)  $9,700 
C)  $10,000 
D)  $10,030

Question 9

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?

Accepted Answer

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 
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

Question 10

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

Accepted Answer

A)  at the time of the sale, it is not known which particular customer will be a "bad" customer 
B)  past default rates are not a good predictor of future default rates 
C)  in bad economic times, fewer customers will have problems with their payments 
D)  those sales have been closed into retained earnings 
A)  at the time of the sale, it is not known which particular customer will be a "bad" customer 
B)  past default rates are not a good predictor of future default rates 
C)  in bad economic times, fewer customers will have problems with their payments 
D)  those sales have been closed into retained earnings

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

Interest Receivable:

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

The Allowance for Doubtful Accounts:

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?

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?

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

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

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

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

Interest Receivable:

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

The Allowance for Doubtful Accounts:

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?

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?

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

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters