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Exam 9: Accounting for Receivables

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Question 61

Multiple Choice

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

A) Debit Cash of $625 and credit Accounts Receivable $625.
B) Debit Sales $625 and credit Accounts Receivable $625.
C) Debit Accounts Receivable $625 and credit Cash $625.
D) Debit Cash of $625 and credit Sales $625.
E) Debit Accounts Receivable $625 and credit Sales $625.

F) None of the above
G) B) and E)

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Question 62

Multiple Choice

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The amount due on the maturity date of a $6,000, 60-day 4%, note receivable is: (Use 360 days a year.)

A) $6,240.
B) $5,760.
C) $6,000.
D) $6,040.
E) $5,960.

F) A) and E)
G) B) and E)

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Question 63

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The percent of sales method for estimating bad debts uses only income statement account balances to estimate bad debts.

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.

On May 31, a company had a balance in its accounts receivable of $103,200. Prepare journal entries to record the following transactions for June. Assume the company uses a perpetual inventory system. June 2 Sold merchandise on account, $12,000. The cost of the merchandise was $7,200. June 8 Sold $15,000 worth of accounts receivable to First Bank. First Bank charged a 4% factoring fee. June 20 Borrowed $30,000 cash from Second National Bank, pledging $31,500 worth of accounts receivable as collateral for the loan.

The following series of transactions occurred during Year 1 and Year 2, when Foxworth Co. sold merchandise to Kevin Lewis. Foxworth's annual accounting period ends on December 31. 10/01/Yr 1 Sold $12,000 of merchandise to K. Lewis, terms 2/10, n/30. 11/15/Yr 1 Lewis reports that he cannot pay the account until early next year. He agrees to exchange the account for a 120-day, 12% note receivable. 12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note. 03/15/Yr 2 Foxworth receives a check from Lewis for the maturity value (with interest) of the note. 03/22/Yr 2 Foxworth receives notification that Lewis' check is being returned for nonsufficient funds (NSF). 12/31/Yr 2 Foxworth writes off Lewis' account as uncollectible. Prepare Foxworth Co.'s journal entries to record the above transactions. The company uses the allowance method to account for its bad debt expense.

No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year: $\begin{array} { l l c } & \text { Debit } & \text { Credit } \\ \text { Cash sales } & & \$ 188,000 \\\text { Credit sales } & & 275,000 \\\text { Accounts receivable } & \$ 76,000 & \\\text { Allowance for doubtful accounts } & & 1,000\end{array}$ Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of credit sales.

Thatcher Company had a January 1, credit balance in its Allowance for Doubtful Accounts of $4,000 for the current year. The following transactions and events affected the Allowance for Doubtful Accounts during the current year: Apr 15 Bean's account receivable of $2,700 was deemed uncollectible. July 1 Cho paid the full amount of a previously written-off account receivable. This receivable of $1,300 had been written off in the prior year. Dec 31 Bad debts expense of $4,500 was recorded. What amount should appear in the allowance for doubtful accounts in the December 31, balance sheet for the current year?

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

Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 1. Lemming's end-of-period adjusting entry on December 31 should be:

__________refers to the expected proceeds from converting an asset into cash.

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

Mercks uses the perpetual inventory system, and accepts the Discovery credit card for credit card sales. Discovery charges Mercks a 3% fee, and all credit card receipts deposited are credited to the company account on the day of deposit. Prepare journal entries to record the following transaction. March 11 Sold merchandise for $4,500 (that had cost $2,100) and accepted the customer's Discovery card.

Which of the following is not true about the Allowance for Doubtful Accounts?

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

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

On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $14,250. 1. Prepare journal entries to record the following selected May transactions. The company uses the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet. a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit. b. Received $465,800 cash in payment of accounts receivable. c. Wrote off $15,800 of uncollectible accounts receivable. d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.