Deck 7: Accounting for Receivables

Question 1

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

Gable Company collected a receivable due from a credit card transaction company;the credit card fee had previously been recognized when the sale was recorded.Show the effect of collection of the receivable on Gables financial statements.

Answer 1

(N)(N)(N)(N)(N)(N)(I)

Question 2

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On September 1,2016,Ruiz Company loaned $10,000 to Alpha Company.Show the effect of the December 31,2016 adjusting entry to accrue interest on Ruiz's financial statements.

Answer 2

(I)(N)(I)(I)(N)(I)(N)

Question 3

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On September 1,2016,Diaz Company loaned $10,000 to Ace Company.Show the effect of this transaction on Diaz's financial statements.

Answer 3

(N)(N)(N)(N)(N)(N)(D)

Question 4

In the first year of operations,2016,John's Repair Service recognized $220,000 of service revenue on account.The ending accounts receivable balance was $15,100.Jake estimates that 3% of sales on account will not be collected;no accounts receivable had been written off by year end.Assume there were no other transactions affecting accounts receivable.
a)What amount of cash was collected in 2016?
b)What amount of uncollectible accounts expense was recognized in 2016?

Question 5

What is aging of accounts receivable,and how is it used to account for uncollectible accounts?

Question 6

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

Garrison Co.uses the allowance method to account for uncollectible accounts.Show how the adjusting entry to recognize uncollectible accounts expense would affect the elements of Garrison's financial statements.

Question 7

What are some of the costs a business incurs in making credit sales to customers? What are some of the benefits of making credit sales?

Question 8

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On November 1,2016,Gable Company accepted a credit card as payment for $1,500 of services rendered to one of its customers.Assume the credit card fee of 3% is recorded on the date of the sale.Show the effect of this transaction on Gable's financial statements.

Question 9

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

Furst Co.uses the allowance method to account for uncollectible accounts expense.On June 20,2016,Furst wrote-off an uncollectible account in the amount of $2,000.On September 1,2016,the account was collected.How would the appropriate entries on September 1 affect the financial statements?

Question 10

What type of account is Allowance for Doubtful Accounts,and what is its normal balance?

Question 11

Under what condition is the direct write-off method of accounting for uncollectible accounts acceptable under GAAP?

Question 12

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

Cole Co.uses the direct write-off method to account for uncollectible accounts in the amount of $4,000.Show the effect of this write-off.

Question 13

What is meant by the net realizable value for accounts receivable?

Question 14

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On March 1,2016,King Co.collected a note receivable and related interest from Havilland Co.The note had been issued one year earlier.Indicate the effects of this event on the elements of King's financial statements.

Question 15

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On December 31,2016,Sparkes Co.estimated it had $12,000 of uncollectible accounts related to credit sales it made during the year.Sparkes,which uses the allowance method,made the proper adjusting entry on this date.Indicate the effects of the adjusting entry.

Question 16

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

Powell Co.uses the allowance method to account for uncollectible accounts expense.On June 20,2016,Powell wrote-off an uncollectible account in the amount of $5,000.Show the effect of this entry.

Question 17

Li Company has the following account balances:
Compute the net realizable value of Li's accounts receivable.

Question 18

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts.

On March 31,2017 Sparkes Co.wrote-off a $400 account receivable of one of its customers,Amy Gates.The $400 sale had been made to Gates last year.Sparkes uses the "allowance method" to account for uncollectible accounts expense.Show how the write-off of the account would affect the elements of Sparkes's financial statements.

Question 19

What type of transaction is the write-off of an uncollectible account using the allowance method? (asset source,asset use,asset exchange,or claims exchange)

Question 20

After the accounts are adjusted at the end of the year,Accounts Receivable has a balance of $235,000,Uncollectible Accounts Expense has a balance of $17,500,and Allowance for Doubtful Accounts has a balance of $12,500.What is the net realizable value of the accounts receivable?

Question 21

Use the following to answer questions
On January 1,2016,Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500,respectively.During the year Kincaid reported $72,500 of credit sales.Kincaid wrote off $550 of receivables as uncollectible in 2016.Cash collections of receivables amounted to $74,550.Kincaid estimates that it will be unable to collect one percent (1%)of credit sales.

-Kincaid's entry to recognize the write-off of the uncollectible accounts will

A)increase total assets and total equity.
B)increase total assets and decrease total equity.
C)decrease total assets and total equity.
D)not affect total assets or total equity.

Question 22

Use the following to answer questions
On January 1,2016 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account.During 2016,Grande provided $104,000 of service on account.The company collected $97,000 cash from accounts receivable.Uncollectible accounts are estimated to be 2% of sales on account.

-Based on this information,the amount of cash flow from operating activities that would appear on the 2016 statement of cash flows is:

A)$97,000.
B)$104,000.
C)$89,520.
D)$95,060.

Question 23

Use the following to answer questions
The Miller Company earned $190,000 of revenue on account during 2016.There was no beginning balance in the accounts receivable and allowance accounts.During 2016 Miller collected $136,000 of cash from its receivables accounts.The company estimates that it will be unable to collect 3% of its sales on account.
37.The amount of uncollectible accounts expense recognized on the 2016 income statement was
A.$5,700.
B.$1,320.
C.$4,080.
D.$54,000.
Answer: A
Learning Objective: 07-01
Topic Area: Uncollectible accounts ― Percent of revenue method
AACSB: Knowledge Application
AICPA: FN Measurement
AICPA: BB Critical Thinking
Blooms: Apply
Level of Difficulty: 2 Medium
Feedback: $190,000 revenue on account x 3% = $5,700

-The net realizable value of Miller's receivables at the end of 2016 was

A)$54,000.
B)$49,920.
C)$59,700.
D)$48,300.

Question 24

If Kettler Company loans $24,000 to Beam Company on March 1,2016,and the one-year note carries an interest rate of 7%,how much interest revenue will Kettler recognize in 2016? How much in 2017?

Question 25

Discuss briefly the costs of making sales on account.

Question 26

Use the following to answer questions
The Miller Company earned $190,000 of revenue on account during 2016.There was no beginning balance in the accounts receivable and allowance accounts.During 2016 Miller collected $136,000 of cash from its receivables accounts.The company estimates that it will be unable to collect 3% of its sales on account.
37.The amount of uncollectible accounts expense recognized on the 2016 income statement was
A.$5,700.
B.$1,320.
C.$4,080.
D.$54,000.
Answer: A
Learning Objective: 07-01
Topic Area: Uncollectible accounts ― Percent of revenue method
AACSB: Knowledge Application
AICPA: FN Measurement
AICPA: BB Critical Thinking
Blooms: Apply
Level of Difficulty: 2 Medium
Feedback: $190,000 revenue on account x 3% = $5,700

-The balance in Accounts Receivable at the beginning of the period amounted to $16,000.During the period $64,000 of credit sales were made to customers.If the ending balance in Accounts Receivable amounted to $10,000,and uncollectible accounts expense amounted to $4,000,then the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement would be:

A)$66,000.
B)$64,000.
C)$80,000.
D)None of these answers are correct.

Question 27

How is the number of days to collect accounts receivable computed? What information does this ratio provide?

Question 28

The year-end adjusting entry to recognize uncollectible accounts expense will

A)decrease assets and decrease equity.
B)increase assets and decrease equity.
C)increase liabilities and increase equity.
D)decrease liabilities and increase equity.

Question 29

How is the accounts receivable turnover computed? What information does this ratio provide?

Question 30

Use the following to answer questions
On January 1,2016,Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500,respectively.During the year Kincaid reported $72,500 of credit sales.Kincaid wrote off $550 of receivables as uncollectible in 2016.Cash collections of receivables amounted to $74,550.Kincaid estimates that it will be unable to collect one percent (1%)of credit sales.

-The amount of uncollectible accounts expense recognized in the 2016 income statement will be:

A)$310.
B)$725.
C)$745.50.
D)$550.

Question 31

How do the percent of revenue method and the percent of receivables method to estimate uncollectible accounts expense differ?

Question 32

Explain the computation of the length of the operating cycle.

Question 33

Why would cash sales companies,such as Wendy's,Domino's,and Krispy Kreme have accounts receivables on their financial statements?

Question 34

When is uncollectible accounts expense recognized if the direct write-off method is used?

Question 35

Use the following to answer questions
On January 1,2016 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account.During 2016,Grande provided $104,000 of service on account.The company collected $97,000 cash from accounts receivable.Uncollectible accounts are estimated to be 2% of sales on account.

-The amount of uncollectible accounts expense recognized on the 2016 income statement is:

A)$320.
B)$1,000.
C)$2,080.
D)$1,940.

Question 36

What is the effect on the accounting equation of writing off an uncollectible account receivable when the direct write-off method is used?

Question 37

What financial statement ratios facilitate the measurement of a company's effectiveness in collecting cash from customers?

Question 38

On January 1,2016,the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800.On January 15,2016 an $800 uncollectible account was written-off.The net realizable value of accounts receivable immediately after the write-off is:

A)$36,200.
B)$33,400.
C)$35,000.
D)$34,200.

Question 39

When a credit card sale is recorded,what is the effect on the accounting equation?

Question 40

Vailes Services Company loaned $6,000 on August 1,2016 to an individual who issued Vailes a promissory note with 6% interest.The issuer of the note repaid the principal and interest on July 30,2017.How did the August 2016 event affect Vailes's statement of cash flows? How did the July 2017 event affect it?

Question 41

Use the following to answer questions
On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.

-Which of the following answers correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4,2016?

Question 42

Which accounting concept can be used by some companies to justify the use of the direct write-off method of accounting for uncollectible accounts?

A)The entity concept.
B)The materiality concept.
C)The going concern concept.
D)The monetary principle.

Question 43

The percent of receivables method to estimate uncollectible accounts expense is also known as:

A)the income statement approach.
B)the direct write-off approach.
C)the credit sales approach.
D)the balance sheet approach.

Question 44

The primary reason for a business to allow customers to purchase goods or services on account is to:

A)increase sales.
B)increase cash flow from financing.
C)decrease cost of goods sold.
D)decrease the marketability of the company's inventory.

Question 45

A company that uses the allowance method to account for uncollectible accounts

A)Records Uncollectible Accounts Expense when a receivable is written off.
B)Does not record uncollectible accounts until the amount becomes significant.
C)Reports the net realizable value of its accounts receivable on the balance sheet.
D)None of these answer choices are correct.

Question 46

Use the following to answer questions
On January 1,2016,Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500,respectively.During the year Kincaid reported $72,500 of credit sales.Kincaid wrote off $550 of receivables as uncollectible in 2016.Cash collections of receivables amounted to $74,550.Kincaid estimates that it will be unable to collect one percent (1%)of credit sales.

-Kincaid's entry required to recognize the uncollectible accounts expense for 2016 will

A)increase total assets and retained earnings.
B)decrease total assets and increase retained earnings.
C)decrease total assets and net income.
D)increase total assets and decrease net income.

Question 47

Use the following to answer questions
On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.

-Assume that the Loudoun Corporation uses the direct write-off method of accounting for uncollectible accounts.Which of the following answers correctly describes the effect of the write-off of the customer's account on Lindley's financial statements?

Question 48

Use the following to answer questions
On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.

-Which of the following answers correctly states the effect of the December 31,2015 adjusting entry for uncollectible accounts on the financial statements of the Loudoun Corporation?

Question 49

The practice of reporting the net realizable value of receivables in the financial statements is commonly called:

A)the cash flow method of accounting for uncollectible accounts.
B)the allowance method of accounting for uncollectible accounts.
C)the direct write-off method of accounting for uncollectible accounts.
D)the accrual method of accounting for uncollectible accounts.

Question 50

Use the following to answer questions
On January 1,2016,Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500,respectively.During the year Kincaid reported $72,500 of credit sales.Kincaid wrote off $550 of receivables as uncollectible in 2016.Cash collections of receivables amounted to $74,550.Kincaid estimates that it will be unable to collect one percent (1%)of credit sales.

-Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense using the allowance method?

Question 51

The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:

A)have no effect on total assets or total equity.
B)increase total equity only.
C)decrease total assets.
D)increase total assets and total equity.

Question 52

Use the following to answer questions
On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.

-Which of the following answers correctly states the effect of Loudoun Company's February 2016 entry to write off the customer's account?

Question 53

Use the following to answer questions
On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.

-Which of the following answers correctly states the effect of recording the collection of the reestablished receivable on April 4,2016?

Question 54

The amount of accounts receivable that is actually expected to be collected is known as:

A)Allowance for doubtful accounts.
B)Uncollectible accounts expense.
C)The present value of accounts receivable.
D)Net realizable value.

Question 55

How would accountants estimate the amount of a company's uncollectible accounts expense?

A)Consider new circumstances that are anticipated to be experienced in the future.
B)Compute as a percentage of credit sales.
C)Consult with trade association and business associates.
D)All of these answer choices are correct.

Question 56

Hancock Medical Supply Co. ,which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts,earned $160,000 of revenue on account during 2016.During 2016,Hancock collected $128,000 of cash from its receivables accounts.The company estimates that it will be unable to collect 1% of revenue on account.The amount of net realizable value of receivables on the December 31,2016 balance sheet would be:

A)$30,400.
B)$30,720.
C)$32,000.
D)$30,000.

Question 57

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

A)The account is a contra account.
B)The account is a temporary account.
C)The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables.
D)The account is increased by an estimate of uncollectible accounts expense.

Question 58

Allegheny Company ended 2015 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900,respectively.During 2016,Allegheny wrote off $1,500 of Uncollectible Accounts.After aging its receivables,Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600.What will Allegheny report as Uncollectible Accounts Expense on its 2016 income statement?

A)$2,200
B)$1,500
C)$700
D)$1,600

Question 59

Use the following to answer questions
On January 1,2016,Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500,respectively.During the year Kincaid reported $72,500 of credit sales.Kincaid wrote off $550 of receivables as uncollectible in 2016.Cash collections of receivables amounted to $74,550.Kincaid estimates that it will be unable to collect one percent (1%)of credit sales.

-The net realizable value of receivables appearing on Kincaid's 2016 balance sheet will amount to:

A)$29,075.
B)$27,725.
C)$28,950.
D)$28,400.

Question 60

Houff Company uses the allowance method to account for uncollectible accounts.An account that had been previously written-off as uncollectible was recovered.How would the recovery affect the company's accounting equation?

A)Increase assets and increase equity.
B)Increase assets and decrease liabilities.
C)Reduce liabilities and increase equity.
D)Have no effect on assets,liabilities or equity.

Question 61

What does the accounts receivable turnover ratio measure?

A)How quickly accounts receivable turn into cash.
B)How quickly the accounts receivable balance increases.
C)Average balance of accounts receivables.
D)How quickly inventory turns into accounts receivable.

Question 62

The average number of days to collect accounts receivable is computed by dividing:

A)Accounts Receivable by net income.
B)365 by the accounts receivable turnover ratio.
C)Accounts Receivable by 365.
D)Sales divided by Accounts Receivable.

Question 63

Which of the following is not a significant difference between the allowance method and the direct write-off method of accounting for uncollectible accounts?

A)One method requires writing off of uncollectible accounts and the other does not.
B)One method conforms to GAAP and the other typically does not.
C)One method reports net realizable value on the balance sheet and the other does not.
D)One method requires the estimation of uncollectible accounts and the other does not.

Question 64

When is it acceptable to use the direct write-off method of accounting for uncollectible accounts?

A)If the dollar amount of uncollectible accounts is not material.
B)If most uncollectible accounts do not occur in the period of sale.
C)If most sales are made to other businesses.
D)All of these answer choices are correct.

Question 65

Which of the following is not an advantage of accepting credit cards from retail customers?

A)The acceptance of credit cards tends to increase sales.
B)The credit card company performs credit worthiness assessments.
C)There are fees charged for the privilege of accepting credit cards.
D)The credit card company assumes the cost of slow collections and write-offs.

Question 66

Alberta Company accepts a credit card as payment for $450 of services provided for the customer.The credit card company charges a 4% handling charge for its collection services.Select the answer that shows how the entry to record the sale would affect Alberta's financial statements.

Question 67

Which of the following is not considered a "cost" of financing credit sales?

A)The opportunity cost of lost interest.
B)Keeping the records for accounts receivable.
C)The increased sales resulting from the extension of credit.
D)The possibility of unpaid accounts.

Question 68

Accounts receivable turnover is computed by dividing:

A)Sales by Accounts Receivable.
B)Accounts receivable by Sales.
C)Cost of goods sold by Inventory.
D)365 by Accounts Receivable.

Question 69

Rhodes Company reports the following information for the 2016 fiscal year:
Determine the average number of days it takes Rhodes to collect its accounts receivable.(Round intermediate calculations to 2 decimal places. )

A)37
B)14
C)39
D)20

Question 70

Glebe Company accepted a credit card account receivable in exchange for $1,100 of services provided to a customer.The credit card company charges a 5% service charge.The collection of cash from the credit card company when it settles the account receivable balance will act to:

A)increase assets by $1,045.
B)decrease assets and equity by $55.
C)increase assets by $1,100.
D)none of these answer choices are correct.

Question 71

Buttercup Florist uses the allowance method to account for uncollectible accounts.Unable to collect a $150 account from a customer,Buttercup determined it was uncollectible.How would the write-off of this account affect the company's financial statements?

Question 72

Elliston Company accepted credit card payments for $10,000 of services provided to customers.The credit card company charges a 3% service charge.This transaction would

A)increase revenue by $9,700.
B)increase assets by $10,000.
C)increase Retained Earnings by $9,700.
D)increase net income by $10,000.

Question 73

Which of the following businesses would most likely have the longest operating cycle?

A)A chain of coffee shops.
B)A national sporting goods chain.
C)An antiques dealer.
D)A Christmas tree farm.

Question 74

Use the following to answer questions
The Yankee Corporation has recently begun to accept credit cards.On July 7,2016,Yankee made a credit card sale of $600.The credit card company charges a fee of 3%.

-Which of the following correctly shows the effects of the sale on July 7? Assume that the credit card fee is recorded on the date of sale.

Question 75

Use the following to answer questions
The Yankee Corporation has recently begun to accept credit cards.On July 7,2016,Yankee made a credit card sale of $600.The credit card company charges a fee of 3%.

-Which of the following answers correctly describes the effect of the collection of cash from the credit card company on the financial statements of Yankee Corporation?

Question 76

The accounting records of the Harris and Schubert Companies contained the following account balances:
Select the true statement from the following options:

A)Schubert Company is likely to incur less credit costs than Harris Company.
B)The company with the higher turnover ratio will also have the longer average number of days to collect accounts receivable.
C)The accounts receivable for Schubert Company turns over 6 times each year.
D)The average number of days to collect accounts receivable for Harris is 73 days.

Question 77

Which of the following general journal entries would be used to recognize $7,500 of uncollectible accounts expense under the direct write-off method?

Question 78

The following information is available for Blankenship Company for the most recent year.
What was Blankenship's operating cycle for the most recent year? (rounded)

A)30 days
B)50 days
C)80 days
D)120 days

Question 79

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1,2016.The one-year note carried a 6% rate of interest.The amount of interest revenue that Rosewood would report in 2016 and 2017,respectively would be:
2016 2017

A)$960 $0
B)$0 $960
C)$240 $720
D)$720 $240

Question 80

A firm's operating cycle can be determined by:

A)Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
B)Adding the average days in inventory to the average days in receivables.
C)Dividing cost-of-goods-sold by average inventory.
D)Dividing 365 days by the difference in the inventory turnover and the receivable turnover.