Exam 7: Accounts and Notes Receivable

If a credit card sale is made, the seller can either debit Cash or debit Accounts receivable when the sale occurs.

The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.

Chiller Company has credit sales of $5.60 million for year 2010. Chiller estimates that 1.32% of the credit sales will not be collected. Historically, 4% of outstanding accounts receivable is uncollectible. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $3,561. Chiller prepares a schedule of its December 31, 2010, 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: December 31,2010 Age of Accounts Expected Percent Accounts Receivable Receivable Uncollectible \ 1,095,000 Not yet due 0.85\% 322,550 1 to 30 days past due 1.42 84,700 31 to 60 days past due 7.60 50,420 61 to 90 days past due 42.50 12,500 Over 90 days past due 81.00 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?

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

The accounts receivable turnover is calculated by dividing _________________ by _____________________.

How does John Earle of Johnny Cupcakes, Inc., view decisions involving sales on credit?

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.

On August 1, 2010, 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 total amount collected at the maturity date?

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

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

It is never good practice to accept a note receivable in exchange for an overdue account receivable.

Corona Company has credit sales of $4.60 million for year 2011. On December 31, 2011, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,164. Corona prepares a schedule of its December 31, 2011, 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: December 31,2011 Age of Accounts Expected Percent Accounts Receivable Receivable Uncollectible \ 720,000 Not yet due 1.05\% 252,000 1 to 30 days past due 1.80 49,600 31 to 60 days past due 6.30 14,100 61 to 90 days past due 31.75 2,850 Over 90 days past due 66.00 Assuming the company used the aging of accounts receivable method, determine the amount that should be recorded for Bad Debt Expense on December 31, 2011.

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

A company has $80,000 in outstanding in 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.

What is the maturity date of a 6-month note receivable dated February 5?

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

Temper Company has credit sales of $3.10 million for year 2010. Temper estimates that .9% of the credit sales will not be collected. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222. Temper prepares a schedule of its December 31, 2010, 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: December 31,2010 Age of Accounts Expected Percent Accounts Receivable Receivable Uncollectible \ 620,000 Not yet due 1.05\% 248,000 1 to 30 days past due 1.80 49,600 31 to 60 days past due 6.30 24,800 61 to 90 days past due 31.75 4,960 Over 90 days past due 66.00 Assuming the company uses the aging of Accounts Receivable method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

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

When the maker of a note honors a note this indicates that the note is:

A company that uses the allowance method to account for its bad debts had credit sales of $740,000 in 2010, including a $720 sale to Linda Paul. On December 31, 2010, the company estimated its bad debts at 1.5% of its credit sales. On June 1, 2011, the company wrote off as uncollectible the $720 account of Linda Paul; and on December 21, 2008 Linda Paul unexpectedly paid her account in full. Prepare the necessary journal entries (a) on December 31, 2010, to reflect the estimate of bad debts expense; (b) on June 1, 2011, to write off the bad debt; and (c) on December 21, 2011, to record the unexpected collection.