Exam 7: Reporting and Analyzing Receivables

Chiller Company has credit sales of $5.60 million for year 2013.Chiller estimates that 1.32% of the credit sales will not be collected.Historically,4% of outstanding accounts receivable is uncollectible.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $3,561.Chiller prepares a schedule of its December 31,2013,accounts receivable by age.Based on past experience,it estimates the percent of receivables in each age category that will become uncollectible.This information is summarized here: Assuming the company uses the percent of sales method, -What is the amount that Chiller will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

The ____________________ of a note is the day the principle plus interest of a note must be repaid.

The _______________________ method uses both past and current receivables to estimate the allowance amount and assumes that the longer an amount is past due,the more likely it is to be uncollectible.

A company reports the following results in its financial statements: Calculate this company's accounts receivable turnover for year 2 and year 3.Compare these two results and give a possible explanation for any significant change.

The matching principle requires use of the direct write-off method of accounting for bad debts.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when the company determines it to be uncollectible.

Receivables can be used to obtain cash by either selling them or using them as security for a loan.

Converting receivables to cash before they are due is usually done by either (1) _______________________ or (2) ________________________________.

Companies can report a credit card expense as a discount deducted from sales or as a selling expense.

If a credit card sale is made,the seller will debit either Cash or Accounts Receivable when the sale occurs depending on the seller's arrangements with the credit card provider.

If the seller regularly offers customers such terms,installment accounts receivable are classified as current assets,even though the installment period is more than one year.

A company borrowed $5,000 by signing a three-month promissory note at 10%.The total interest on the note is $500.

A company has $80,000 in outstanding accounts receivables and it uses the allowance method to account for uncollectible accounts.Experience suggests that 5% of outstanding receivables are uncollectible.The current credit balance (before adjustments) in the allowance for doubtful accounts is $600.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,000.

A company that has a high accounts receivable turnover in comparison with competitors should tighten its credit policy.

The advantage of the allowance method of accounting for uncollectible accounts is that it identifies the specific customers who do not pay their bills.

Broadway Inc.uses the direct write-off method.Previously,the company had written off the account of M.Douglas in full.Six months later,Broadway collected $600,the full amount due,from M.Douglas.How would Broadway Inc.record this transaction?

With regard to accounts receivable,both GAAP and IFRS require the allowance method for uncollectibles (unless uncollectibles are immaterial).

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

A company receives a 10%,90-day note for $1,500.The total interest due upon the maturity date is:

Outdoors Unlimited accepts the Explorer credit card from its customers.Explorer charges a 3.5% service fee and pays Outdoors Unlimited the amount net of Explorer charges once a month.During February,Outdoors Unlimited sold $27,000 worth of merchandise to customers using the Explorer charge card.On February 28,Outdoor Unlimited sent the $27,000 worth of credit card receipts to Explorer.On March 4,Outdoors Unlimited received cash proceeds from Explorer for the February credit sales less the service charge.Prepare the general journal entries to record February sales and the March 4 cash receipt.