Exam 7: Accounts and Notes Receivable

Newton Company uses the allowance method of accounting for uncollectible accounts.On May 3,the Newton Company wrote off the $3,000 uncollectible account of its customer,P.Best.On July 10,Newton received a check for the full amount of $3,000 from Best.On July 10,the entry or entries Newton makes to record the recovery of the bad debt is:

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

The use of an allowance for bad debts is required under the materiality constraint.

Credit sales are recorded by crediting an account receivable for the specific customer who is making the purchase.

There are two methods of accounting for uncollectible accounts: the direct write-off method and the allowance method.

A company uses the aging of accounts receivable method to estimate its bad debts expense.On December 31 of the current year,an aging analysis of accounts receivable revealed the following: Accounts Estimated Receivable Account Age Uncollectible \ 620,000 Not due yet 0.5\% 270,000 1-30 days overdue 2.0 145,000 31-60 days overdue 8.0 55,000 61-90 days overdue 20.0 32,000 91-120 days overdue 50.0 18,000 Over 120 days overdue 70.0 \ 1,140,000 Total Required: a.Calculate the amount of the allowance for doubtful accounts that should be reported on the current year-end balance sheet. b.Calculate the amount of the bad debts expense that should be reported on the current year's income statement,assuming that the balance of the allowance for doubtful accounts on January 1 of the current year was $44,000 and that accounts receivable written off during the current year totaled $49,200. c.Prepare the adjusting journal entry to record bad debts expense on December 31 of the current year. d.Show how accounts receivable will appear on the current year-end balance sheet as of December 31.

The percent of sales method for estimating bad debts assumes that a given percentage of a company's credit sales for the period are uncollectible.

The quality of receivables refers to:

Welles Company uses the direct write-off method of accounting for uncollectible accounts receivable.On December 6,2013,Welles sold $6,300 of merchandise to the Fleming Company.On August 8,2014,after numerous attempts to collect the account,Welles determined that the $6,300 account of the Fleming Company was uncollectible. a.Prepare the general journal entries required to record the transactions on August 8,2014. b.Assuming that the $6,300 is material,explain how the direct write-off method violates the matching principle in this case.

The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account.

Prepare general journal entries for the following transactions of Viking Company,assuming they use the allowance method to account for uncollectible accounts. Apr 1 Sold \ 2,500 of merchandise to Arthur Co., receiving an 8\%,90 -day, \ 2,500 note. 15 Wrote off \ 1,500 owed by Network Co. 30 Received a \ 6,000,5\%,30 -day note receivable from Calvin Co. as exchange for its \ 6,000 account receivable. May 30 The note received from Calvin on April 30 was collected in full. June 30 Arthur Co. was unable to pay the note on the due date. July 15 Network Co. paid \ 1,000 of the amount written off on April 15.

A ____________________ is a signed promise to pay a specified amount of money either on demand or at a definite future date.

A company received a $1,000,90-day,10% note receivable.The journal entry to record receipt of the note would include a debit to Notes Receivable.

Explain the basic differences between estimating the amount of uncollectible accounts using the percent of sales method and the accounts receivable method.

The _________________________ method uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

During a given year,Compaq had net sales of $32,000 million and average account receivables of $6,850 million.Its accounts receivable turnover is equal to 0.21.

If a 60-day note receivable is dated September 22,what is the maturity date of the note?

The interest accrued on $3,600 at 7% for 60 days is:

On November 15,2013,Betty Corporation accepted a note receivable in place of an outstanding accounts receivable in the amount of $138,460.The note is due in 90 days and has an interest rate of 7.5%.What is the appropriate journal entry to record at maturity?

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