Question 1

Describe how accounts receivable arise and how they are accounted for,including the use of a subsidiary ledger and an allowance account.

Accepted Answer

Accounts receivable arise from credit sales to customers.Accounts receivable are reported at their realizable value,which is their total amount less an estimate for the amount of uncollectible accounts.Accounts receivable are also recorded into an accounts receivable subsidiary ledger that lists separately amounts owed by individual customers.

Question 2

When using the allowance method of accounting for uncollectible accounts,the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:

Accepted Answer

A)  Direct write-off method. 
B)  Aging of accounts receivable method. 
C)  Percent of sales method. 
D)  Aging of investments method. 
E)  Percent of accounts receivable method. 
A)  Direct write-off method. 
B)  Aging of accounts receivable method. 
C)  Percent of sales method. 
D)  Aging of investments method. 
E)  Percent of accounts receivable method.

Question 5

Wallah Company agreed to accept $5,000 in cash along with an $8,000,90-day,13.5% note from customer Judith Klemper to settle her $13,000 past-due account.How should Wallah record this transaction?

Accepted Answer

A)  $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable - J. Klemper } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Note Receivable } & \mathbf { 8 , 0 0 0 } & \
\hline \text { Sales } & & \mathbf { 8 , 0 0 0 } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } &  8 , 0 0 0 & \
\hline \text { Sales } & & 13,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } & 8 , 0 0 0 & \
\hline \text { Account Receivable -J. Klemper } & & 13,000 \
\hline
\end{array}$$ 
E)  $\begin{array}{|l|l|l|}
\hline \text { Sales } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$ 
A)  $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable - J. Klemper } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Note Receivable } & \mathbf { 8 , 0 0 0 } & \
\hline \text { Sales } & & \mathbf { 8 , 0 0 0 } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } &  8 , 0 0 0 & \
\hline \text { Sales } & & 13,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } & 8 , 0 0 0 & \
\hline \text { Account Receivable -J. Klemper } & & 13,000 \
\hline
\end{array}$$ 
E)  $\begin{array}{|l|l|l|}
\hline \text { Sales } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$

Question 6

Companies follow both the matching principle and the materiality principle when applying the direct write-off method.

Accepted Answer

A) True 
 B)False

Question 7

Prepare general journal entries for the following transactions of this company for the current year:
 $\begin{array}{|l|l|}
\hline\text { Apr. 25 } & \begin{array}{l}
\text { Sold } \$ 4,500 \text { of merchandise to CBC Corp, receiving a 10\%,60-day, \$4,500 note } \
\text { receivable. }
\end{array} \
\hline \text { June 24 } & \text { The note of CBC Corp., received on April 25 was dishonored. }\
\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | r | r | } 
\

Question 8

Corona Company has credit sales of $4.60 million for year 2014.On December 31,2014,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,164.Corona prepares a schedule of its December 31,2014,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:
 $\begin{array}{ccc}
\text { December 31,2014}&\text { Age of Accounts}&\text { Expected Percent}\
\text { Accounts Receivable}&\text { Receivable}&\text { Uncollectible}\
\$ 720,000 & \text { Not yet due } & 1.05 \% \
252,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
 49,600 & 31 \text { to } 60 \text { days past clue } & 6.30 \
 14,100 & 61 \text { to } 90 \text { days past due } & 31.75 \
2,850 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$ 
Assuming the company used the aging of accounts receivable method,determine the amount that should be recorded for bad debt expense on December 31,2014.

Accepted Answer

720,000 X .0105 = 7,560.00
252,000 X .01

Question 9

Define a note receivable and explain how interest is calculated on a short-term note receivable.

Accepted Answer

A note receivable is a promissory note,w

Question 10

The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the amount that is uncollectible.

Accepted Answer

A) True 
 B)False

Question 11

Under the allowance method of accounting for uncollectible accounts receivable,no estimate is made to predict bad debts expense.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Assume that this company's bad debts are estimated and recorded as 1.5% of credit sales.
On December 31,of the current year,a company's unadjusted trial balance revealed the following: accounts receivable of $185,600; sales revenue of $1,280,000; (75% were on credit)and allowance for doubtful accounts of $1,600 (credit balance).
a.Show how accounts receivable and the allowance for doubtful accounts would appear on the balance sheet after adjustment.
b.Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
c.Show how accounts receivable and the allowance for doubtful accounts would appear on the balance sheet immediately after writing off the account in part 2.

Accepted Answer

None

Question 14

The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.

Accepted Answer

A) True 
 B)False

Question 15

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:
 $\begin{array}{|l|l|r|}
\hline & \text { Debit } & \text { Credit } \
\hline \text { Cash sales } & & \$ 88,000 \
\hline \text { Credit sales } & & 275,000 \
\hline \text { Accounts receivable } & \$ 96,000 & \
\hline \text { Allowance for doubtful accounts } & & 1,000 \
\hline
\end{array}$ 
Prepare the adjusting entry to estimate bad debts under each of the following separate situations.
a.Bad debts are estimated to be 2.5% of credit sales.
b.An aging analysis estimates that 8% of the outstanding accounts receivable will be uncollectible.

Accepted Answer

None

Question 16

Myrex Corporation purchased $4,000 in merchandise from TechCom.Myrex signed a 60-day,10%,$4,000 promissory note.TechCom should record the sale with a journal entry debiting ____________________ for $________ and crediting __________________ for $________.

Accepted Answer

Notes Rece

Question 17

Dell reported net sales of $8,739 million and average accounts receivable of $864 million.Its accounts receivable turnover is:

Accepted Answer

A)  0.90 
B)  10.1 
C)  36.1 
D)  50.0 
E)  3,686 
A)  0.90 
B)  10.1 
C)  36.1 
D)  50.0 
E)  3,686

Question 18

The accounts receivable turnover ratio indicates how often accounts receivable are received and collected during the period.

Accepted Answer

A) True 
 B)False

Question 19

Teller,a calendar year company,purchased merchandise from TechCom on October 17 of the current year.TechCom accepted Teller's $4,800,90-day,10% note as payment.What entry should TechCom make on January 15 of the next year when the note is paid,assuming an adjusting entry for interest was made for interest on December 31?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 4,800 & \
\hline \text { Interest Receivable } & 120 & \
\hline \text { Sales } & & 4,920 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Notes Receivable } & & 4,920 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 100 \
\hline \text { Interest Receivable } & & 20 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 20 \
\hline \text { Interest Receivable } & & 100 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 120 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 4,800 & \
\hline \text { Interest Receivable } & 120 & \
\hline \text { Sales } & & 4,920 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Notes Receivable } & & 4,920 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 100 \
\hline \text { Interest Receivable } & & 20 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 20 \
\hline \text { Interest Receivable } & & 100 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 120 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$

Question 20

Mix Recording Studios purchased $7,800 in electronic components from TechCom.Mix Recording Studios signed a 60-day,10% promissory note for $7,800.TechCom's journal entry to record the sales portion of the transaction is:

Accepted Answer

A)  $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Interest Receivable } & 130 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$ 
A)  $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Interest Receivable } & 130 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$

Exam 7: Accounts and Notes Receivable

Describe how accounts receivable arise and how they are accounted for,including the use of a subsidiary ledger and an allowance account.

When using the allowance method of accounting for uncollectible accounts,the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable.

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

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:

Wallah Company agreed to accept $5,000 in cash along with an $8,000,90-day,13.5% note from customer Judith Klemper to settle her $13,000 past-due account.How should Wallah record this transaction?

Companies follow both the matching principle and the materiality principle when applying the direct write-off method.

Prepare general journal entries for the following transactions of this company for the current year: Apr. 25 Sold \ 4,500 of merchandise to CBC Corp, receiving a 10\%,60-day, \4 ,500 note receivable. June 24 The note of CBC Corp., received on April 25 was dishonored.

Define a note receivable and explain how interest is calculated on a short-term note receivable.

The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the amount that is uncollectible.

Under the allowance method of accounting for uncollectible accounts receivable,no estimate is made to predict bad debts 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.

The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.

Myrex Corporation purchased $4,000 in merchandise from TechCom.Myrex signed a 60-day,10%,$4,000 promissory note.TechCom should record the sale with a journal entry debiting ____________________ for $________ and crediting __________________ for $________.

Dell reported net sales of $8,739 million and average accounts receivable of $864 million.Its accounts receivable turnover is:

The accounts receivable turnover ratio indicates how often accounts receivable are received and collected during the period.

Mix Recording Studios purchased $7,800 in electronic components from TechCom.Mix Recording Studios signed a 60-day,10% promissory note for $7,800.TechCom's journal entry to record the sales portion of the transaction is:

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing

Activity-Based Costing and Analysis

Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Decentralization and Performance Measurement

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Accounting With Special Journals

Time Value of Money

Investments and International Operations

Accounting for Partnerships

Filters

Myrex Corporation purchased $4,000 in merchandise from TechCom.Myrex signed a 60-day,10%,$4,000 promissory note.TechCom should record the sale with a journal entry debiting __________ for $ and crediting for $.