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Exam 7: Accounting for Receivables

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Question 51

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The matching principle requires use of the allowance method of accounting for bad debts.

A) True
B) False

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Question 52

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A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

A) Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and credit to Accounts Receivable of $46,800.
B) Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C) Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.
D) Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.
E) Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

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

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Question 53

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On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end?

When using the allowance method of accounting for uncollectible accounts, the entry to write off Macie's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable-Macie.

A company borrowed $16,000 by signing a 4-month promissory note at 12%. The total interest on the note is $640.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is: A) $\begin{array} { | l | r | r | } \hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Allowance for Doubtful Accounts } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$ B) $\begin{array} { | l | r | r | } \hline \text { Cash } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Allowance for Doubtful Accounts } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Cash } & & 2,000 \\\hline\end{array}$ E) $\begin{array} { | l | r | r | } \hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of the note?

The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.

The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible.

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 4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?

A company received a $15,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable.

Gemstone Products allows customers to use bank credit cards to charge purchases. The bank used by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all credit card receipts deposited are credited to the company account on the day of deposit. Assume that on January 18, Gemstone Products sold and deposited $18,000 worth of bank credit card receipts. Prepare the general journal entry to record this transaction.

What is the maturity date of a 120-day note receivable dated March 5?

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

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 2. Lemming's end-of-period adjusting entry on December 31 should be:

Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

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