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Exam 7: Accounting for Receivables

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Question 31

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Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the sales transaction is:

A) Debit Accounts Receivable $4,000; credit Sales $4,000
B) Debit Notes Receivable $4,000; credit Sales $4,000
C) Debit Accounts Receivable $4,060; credit Sales $4,060
D) Debit Notes Receivable $4,060; credit Sales $4,060
E) Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060

F) A) and E)
G) D) and E)

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Question 32

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Describe the differences in how the direct write-off method and the allowance method are applied in accounting for uncollectible accounts receivables.

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The direct write-off method records the ...

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Question 33

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Which of the following is not true regarding a credit card expense?

The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.

A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date.

Under IFRS, the term provision:

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

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

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is:

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record this sale transaction would be:

MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be:

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The quality of receivables refers to:

Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its competitor, Stanley, had net sales of $290,000 and average accounts receivables of $61,350. Calculate the accounts receivable turnover for both companies. Which company is doing a better job of managing its accounts receivables?

Reporting the details of notes is consistent with which accounting principle that requires financial statements (including footnotes) to report all relevant information?

All of the following statements regarding recognition of receivables under U.S. GAAP and IFRS are true except:

A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: $\begin{array} { | l | r | } \hline \text { Accounts receivable } & \$ 375,000 \text { debit } \\\hline \text { Allowance for uncollecible accounts } & 500 \text { debit } \\\hline \text { Net Sales } & 800,000 \text { credit } \\\hline\end{array}$ All sales are made on credit. Based on past experience, the company estimates that 0.6% of credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?