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Exam 7: Accounting for Receivables

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Question 1

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Which of the following reflects the effect of the year-end adjustment to record estimated uncollectible accounts expense using the allowance method?

A) Option A
B) Option B
C) Option C
D) Option D

E) B) and C)
F) A) and D)

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Question 2

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[The following information applies to the questions displayed below.] On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. -Assume that the Loudoun Corporation uses the direct write-off method.Which of the following correctly describes the effect of the write-off of the customer's account on Loudoun's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

E) A) and C)
F) B) and D)

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Question 3

Multiple Choice

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[The following information applies to the questions displayed below.] On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. -Which of the following correctly states the effect of Loudoun Company writing off the customer's account?

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -What is the net realizable value of receivables that will be reported on Kincaid's Year 2 balance sheet?

Alberta Company accepts a credit card as payment for $450 of services provided for the customer.The credit card company charges a 4% fee for handling the transaction.How does this this transaction affect the elements of the financial statements?

When is it acceptable to use the direct write-off method?

When a company receives payment from a customer whose account was previously written off,the customer's account should be reinstated.

Barton Corporation uses the percent of receivables method.As of December 31,Year 1,prior to estimating uncollectible accounts expense,Barton's balance of accounts receivable was $68,900,the balance of allowance for doubtful accounts was $2,500,and total sales for Year 1 were $875,000.On December 31,Barton aged its receivables and determined the following: Indicate whether each of the following statements is true or false.

For a company that uses the allowance method,the write-off of an uncollectible account receivable is an asset use transaction.

The net realizable value of accounts receivable is the amount of receivables a company expects to collect.

On January 1,Year 1,the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800.On January 15,Year 1,an $800 uncollectible account was written-off.What is the net realizable value of accounts receivable immediately after the write-off?

Most companies report receivables on their balance sheets at the net realizable value.

The Griffin Corporation accepted a credit card for a sale of $3,000 on December 16,Year 1.The credit card company charges a fee of 4%.On January 5,Year 2,Griffin received payment from the credit card company.Indicate whether each of the following statements is true or false.

The adjustment to recognize uncollectible accounts expense is an asset use transaction.

When an uncollectible account receivable is written off under the allowance method,the amount of total assets is unchanged.

[The following information applies to the questions displayed below.] The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. -What is the amount of uncollectible accounts expense that will be recognized on the Year 1 income statement?

[The following information applies to the questions displayed below.] On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. -Which of the following correctly states the effect of the adjustment dated December 31,Year 1,on the elements of the financial statements of the Loudoun Corporation?

On June 1,Year 2,Carolina Company collected a $24,000 note receivable that had been issued on June 1,Year 1.The note carried a 6% interest rate.On June 1,Year 2,the company will recognize interest revenue in the amount of $1,440.

Elliston Company accepted credit card payments for $10,000 of services provided to customers.The credit card company charges a 3% fee for handling the transaction.Which of the following describes the effect of this transaction?

If the allowance method is used,how does recording the recovery of an uncollectible account affect the elements of the financial statements? (Hint: Consider the effect of both the reinstatement and the collection of the receivable taken together.)