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Exam 9: Accounting for Receivables

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Question 1

Multiple Choice

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Sellers allow customers to use credit cards for all of the following reasons except:

A) To speed up receipt of cash from the credit sale.
B) To lessen the risk of extending credit to customers who cannot pay.
C) To avoid having to evaluate a customer's credit standing for each sale.
D) To be able to charge more due to fees and interest.
E) To increase total sales volume.

F) C) and E)
G) A) and E)

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Question 2

Multiple Choice

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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: (Use 360 days a year.)

A) $437.50.
B) $875.00.
C) $145.83.
D) $19.44.
E) $1,750.

F) B) and C)
G) C) and E)

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Question 3

Multiple Choice

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Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)

A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is: (Use 360 days a year.)

If a customer owes interest on accounts receivable, Interest Receivable is debited and Accounts Receivable is credited.

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.) (Use 360 days a year.)

When posting a dishonored note to a customer's account, an explanation is included so as not to misinterpret the debit as a sale on account.

Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 0.5% of sales, what is the amount of the bad debts expense adjusting entry?

Installment Accounts Receivable are classified as non-current assets if the installment period is more than one year, even if the seller regularly offers customers such terms.

Woods Co. uses a perpetual inventory system, and accepts the World Express credit card from its customers. World Express charges a 3.5% service fee and all credit card receipts deposited are credited to the company account on the day of deposit. On February 28, Woods sold $24,000 worth of merchandise to customers (that had cost $14,400)using the World Express charge card. Prepare the journal entries to record February 28 sales.

Companies follow both the expense recognition (matching)principle and the materiality constraint when applying the direct write-off method.

Companies can report credit card expense as a reduction in net sales or as a selling expense.

On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

Factoring receivables is beneficial to a seller for all of the following reasons except:

The period of a note is the time from the note's (contract)date to its maturity date.

On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the direct write-off method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the percent of each uncollectible class.

Match each of appropriate definitions with correct terms.

A promissory note: