Question 1

The party who borrows money and signs a promissory note is referred to as the payee.

Accepted Answer

A) True 
 B)False

Question 2

Explain how to record the receipt of a note receivable.

Accepted Answer

The receipt of a note receivable is reco

Question 3

According to GAAP,the amount of bad debt expense can be estimated by:

Accepted Answer

A)  Only the percent of sales method. 
B)  Only the percent of accounts receivable method. 
C)  Only by the aging of accounts receivable method. 
D)  Only by the percent of sales method or the percent of accounts receivable method. 
E)  Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method. 
A)  Only the percent of sales method. 
B)  Only the percent of accounts receivable method. 
C)  Only by the aging of accounts receivable method. 
D)  Only by the percent of sales method or the percent of accounts receivable method. 
E)  Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method.

Question 4

When using the allowance method of accounting for uncollectible accounts,the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

Accepted Answer

A) True 
 B)False

Question 5

The ________________________ methods use balance sheet relationships to estimate bad debts-mainly the relation between accounts receivable and the allowance amount.

Accepted Answer

The answer of The ________________________ methods use balance sheet relationships...

Question 6

On October 29 of the current year,a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?

Accepted Answer

A)  Decrease in net income; no effect on total assets. 
B)  No effect on net income; no effect on total assets. 
C)  Decrease in net income; decrease in total assets. 
D)  Increase in net income; no effect on total assets. 
E)  No effect on net income; decrease in total assets. 
A)  Decrease in net income; no effect on total assets. 
B)  No effect on net income; no effect on total assets. 
C)  Decrease in net income; decrease in total assets. 
D)  Increase in net income; no effect on total assets. 
E)  No effect on net income; decrease in total assets.

Question 7

As long as a company accurately records total credit sales information,it is not necessary to have separate accounts for specific customers.

Accepted Answer

A) True 
 B)False

Question 8

Corona Company has credit sales of $4.60 million for year 2014.The company estimates that 1.42% of accounts receivable will be uncollectible.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 uses the percent of accounts receivable method,determine the amount that should be recorded for bad debt expense on December 31,2014.

Accepted Answer

Accounts Receivable:

Question 9

The following information is from the annual financial statements of Duke Company.
 $\begin{array}{llr}
 &2014&2013&2012\
 \text { Net sales } &\$385,000&\$308,000&\$255,000\
 \text {Accounts receivable, net (year-end)  } &57,500&54,000&44,700
\end{array}$

Calculate the accounts receivable turnover ratio for 2013 and 2014.

Accepted Answer

2013: 308,000/((54,0

Question 10

On August 1,2013,Ace Corporation accepted a note receivable in place of an outstanding accounts receivable in the amount of $123,965.The note is due in 90 days and has an interest rate of 8%.What would be the appropriate journal entry to record the receipt of cash at the maturity date?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 123,965.00 & \
\hline \text { Notes Receivable } & & 123,965.00 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 123,965.00 & \
\hline \text { Accounts Receivable } & & 123,965.00 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 123,965.00 & \
\hline \text { Interest Revernue } & 2,479.30 & \
\hline \text { Cash } & & 126,444.30 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 123,965.00 & \
\hline \text { Interest Receivable } & 2,479.30 & \
\hline \text { Notes Receivable } & & 126,444.30 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 126,444.30 & \
\hline \text { Interest Revenue } & & 2,479.30 \
\hline \text { Notes Receivable } & & 123,965.00 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 123,965.00 & \
\hline \text { Notes Receivable } & & 123,965.00 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 123,965.00 & \
\hline \text { Accounts Receivable } & & 123,965.00 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 123,965.00 & \
\hline \text { Interest Revernue } & 2,479.30 & \
\hline \text { Cash } & & 126,444.30 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 123,965.00 & \
\hline \text { Interest Receivable } & 2,479.30 & \
\hline \text { Notes Receivable } & & 126,444.30 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 126,444.30 & \
\hline \text { Interest Revenue } & & 2,479.30 \
\hline \text { Notes Receivable } & & 123,965.00 \
\hline
\end{array}$$

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Acme Company has credit sales of $3.10 million for year 2013.Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,575.Acme prepared 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:
$\begin{array}{ccc}
\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\
 \$620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
 49,600 & 31 \text { to } 60 \text { dlays past due } & 6.30 \
 24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$
Assuming the company uses the percent of accounts receivable method,what is the amount that Acme will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Accepted Answer

A)  $18,947.20 
B)  $16,372.20 
C)  $23,024.40 
D)  $27,900.00 
E)  $21,522.20 
A)  $18,947.20 
B)  $16,372.20 
C)  $23,024.40 
D)  $27,900.00 
E)  $21,522.20

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

On December 31 of the current year,a company's unadjusted trial balance included the following: Accounts Receivable,debit balance of $97,250; Allowance for Doubtful Accounts,credit balance of $951.What amount should be debited to Bad Debts Expense,assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

Accepted Answer

A)  $951 
B)  $3,992 
C)  $4,884 
D)  $5,835 
E)  $6,786 
A)  $951 
B)  $3,992 
C)  $4,884 
D)  $5,835 
E)  $6,786

Question 16

The matching principle requires:

Accepted Answer

A)  That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user. 
B)  The use of the direct write-off method for bad debts. 
C)  The use of the allowance method of accounting for bad debts. 
D)  That bad debts be disclosed in the financial statements. 
E)  That bad debts not be written off. 
A)  That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user. 
B)  The use of the direct write-off method for bad debts. 
C)  The use of the allowance method of accounting for bad debts. 
D)  That bad debts be disclosed in the financial statements. 
E)  That bad debts not be written off.

Question 17

What is the amount of interest that is due on a $36,000,3-month,4% note receivable?

Accepted Answer

$36,000 x

Question 18

The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts.

Accepted Answer

A) True 
 B)False

Question 19

The formula for computing interest on a note is the principal of the note times the annual interest rate times time expressed in a fraction of year.

Accepted Answer

A) True 
 B)False

Question 20

Tecom had net sales of $315,000 and average accounts receivable of $75,600.Its competitor,ZCom,had net sales of $299,000 and average accounts receivables of $81,350.Calculate the accounts receivable turnover for both companies.Which company is doing a better job of managing its accounts receivables?

Accepted Answer

Tecom: $315,000/$75,600 = 4.2 times
ZCom

Exam 7: Accounts and Notes Receivable

The party who borrows money and signs a promissory note is referred to as the payee.

Explain how to record the receipt of a note receivable.

According to GAAP,the amount of bad debt expense can be estimated by:

When using the allowance method of accounting for uncollectible accounts,the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

The ________________________ methods use balance sheet relationships to estimate bad debts-mainly the relation between accounts receivable and the allowance amount.

As long as a company accurately records total credit sales information,it is not necessary to have separate accounts for specific customers.

The following information is from the annual financial statements of Duke Company. 2014 2013 2012 Net sales \3 85,000 \3 08,000 \2 55,000 Accounts receivable, net (year-end) 57,500 54,000 44,700 Calculate the accounts receivable turnover ratio for 2013 and 2014.

On August 1,2013,Ace Corporation accepted a note receivable in place of an outstanding accounts receivable in the amount of $123,965.The note is due in 90 days and has an interest rate of 8%.What would be the appropriate journal entry to record the receipt of cash at the maturity date?

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

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

The matching principle requires:

What is the amount of interest that is due on a $36,000,3-month,4% note receivable?

The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts.

The formula for computing interest on a note is the principal of the note times the annual interest rate times time expressed in a fraction of year.

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

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