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Exam 7: Accounts and Notes Receivable

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Question 41

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Explain how to record the receipt of a note receivable.

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The receipt of a note receivable is reco...

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Question 42

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The ________________________ methods use balance sheet relationships to estimate bad debts-mainly the relation between accounts receivable and the allowance amount.

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The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts.

The advantage of the allowance method of accounting for uncollectible accounts is that it identifies the specific customers who do not pay their bills.

Tecom had net sales of $315,000 and average accounts receivable of $75,600.Its competitor,ZCom,had net sales of $299,000 and average accounts receivables of $81,350.Calculate the accounts receivable turnover for both companies.Which company is doing a better job of managing its accounts receivables?

The following information is from the annual financial statements of Duke Company. $\begin{array}{llr} &2014&2013&2012\\ \text { Net sales } &\$385,000&\$308,000&\$255,000\\ \text {Accounts receivable, net (year-end) } &57,500&54,000&44,700\end{array}$ Calculate the accounts receivable turnover ratio for 2013 and 2014.

As long as a company accurately records total credit sales information,it is not necessary to have separate accounts for specific customers.

According to GAAP,the amount of bad debt expense can be estimated by:

The party who borrows money and signs a promissory note is referred to as the payee.

Acme Company has credit sales of $3.10 million for year 2013.Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,575.Acme prepared a schedule of its December 31,2013,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: $\begin{array}{ccc}\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \\\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\ \$620,000 & \text { Not yet due } & 1.05 \% \\248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \\ 49,600 & 31 \text { to } 60 \text { dlays past due } & 6.30 \\ 24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \\4,960 & \text { Over } 90 \text { days past due } & 66.00\end{array}$ Assuming the company uses the percent of accounts receivable method,what is the amount that Acme will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

On August 1,2013,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 appropriate journal entry to record the receipt of cash at the maturity date?

A company has $80,000 in outstanding 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.

Corona Company has credit sales of $4.60 million for year 2014.The company estimates that 1.42% of accounts receivable will be uncollectible.On December 31,2014,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,164.Corona prepares a schedule of its December 31,2014,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: $\begin{array}{ccc}\text { December 31,2014}&\text { Age of Accounts}&\text { Expected Percent}\\\text { Accounts Receivable}&\text { Receivable}&\text { Uncollectible}\\\$ 720,000 & \text { Not yet due } & 1.05 \% \\252,000 & 1 \text { to } 30 \text { days past due } & 1.80 \\ 49,600 & 31 \text { to } 60 \text { days past clue } & 6.30 \\ 14,100 & 61 \text { to } 90 \text { days past due } & 31.75 \\2,850 & \text { Over } 90 \text { days past due } & 66.00\end{array}$ Assuming the company uses the percent of accounts receivable method,determine the amount that should be recorded for bad debt expense on December 31,2014.

On December 31 of the current year,a company's unadjusted trial balance included the following: Accounts Receivable,debit balance of $97,250; Allowance for Doubtful Accounts,credit balance of $951.What amount should be debited to Bad Debts Expense,assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

On October 29 of the current year,a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?

When using the allowance method of accounting for uncollectible accounts,the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

The matching principle requires use of the direct write-off method of accounting for bad debts.

The matching principle requires:

The formula for computing interest on a note is the principal of the note times the annual interest rate times time expressed in a fraction of year.

What is the amount of interest that is due on a $36,000,3-month,4% note receivable?