Deck 7: Accounting for Receivables

Question 1

The quality of receivables refers to the likelihood of collection without loss.

Answer 1

True

Question 2

A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee.The journal entry to record this transaction would include a debit to Cash of $30,000,a debit to Factoring Fee Expense of $600,and credit to Accounts Receivable of $30,600.

Answer 2

False

Question 3

Credit sales are recorded by crediting Accounts Receivable.

Answer 3

False

Question 4

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

Question 5

The person that borrows money and signs a promissory note is called the maker.

Question 6

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

Question 7

The formula for computing interest on a note is: Principal of the note × Annual interest rate × Time expressed in fraction of year.

Question 8

BizCom's customer,Redding,paid off an $8,300 balance on its account receivable.BizCom should record the transaction as a debit to Accounts Receivable-Redding and a credit to Cash.

Question 9

A company borrowed $10,000 by signing a six-month promissory note at 5% interest.The amount of interest to be paid at maturity is $25.

Question 10

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

Question 11

An Installment Accounts Receivable is classified as a non-current asset if the installment period is six months.

Question 12

A promissory note is a written promise to pay a specified amount of money either on demand or at a stated future date.

Question 13

The maturity date of a note refers to the date the note must be repaid.

Question 14

If a sale is made with a bank credit card,the seller debits Cash and credits Sales for the same amount.

Question 15

The process of using accounts receivable as security for a loan is known as pledging accounts receivable.

Question 16

A company borrowed $16,000 by signing a 4-month promissory note at 12%.The amount of interest to be paid at maturity is $640.

Question 17

A receivable is an amount due from another party.

Question 18

Federal laws prohibit the selling of accounts receivable to factors.

Question 19

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.

Question 20

Since pledged accounts receivables only serve as collateral for a loan and are not sold,it is not necessary to disclose the pledging.

Question 21

The allowance method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

Question 22

A company had net sales of $550,000 and an average accounts receivable of $110,000.Its accounts receivable turnover equals 5.0.

Question 23

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.

Question 24

When using the allowance method of accounting for uncollectible accounts,the entry to record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

Question 25

The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

Question 26

Allowance for Doubtful Accounts is a contra asset; its balance is added to Accounts receivable.

Question 27

The accounts receivable turnover indicates how often accounts receivable are collected during the period.

Question 28

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

Question 29

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

Question 30

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

Question 31

The expense recognition principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

Question 32

The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills.

Question 33

The use of the direct write-off method is allowed under the materiality constraint.

Question 34

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.

Question 35

Companies use two methods to account for uncollectible accounts,the direct write-off method and the allowance method.

Question 36

After adjustment,the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

Question 37

The allowance method estimates bad debts expense at the end of each accounting period.

Question 38

The realizable value refers to the accounts receivable amount expected to be received.

Question 39

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

Question 40

A Company had net sales of $23,000,and its average account receivables were $5,700.Its accounts receivable turnover is 0.24.

Question 41

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 6% of outstanding receivables are uncollectible.The current debit balance (before adjustments)in the allowance for doubtful accounts is $1,200.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

Question 42

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

Question 43

A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible.The unadjusted balance in Allowance for Doubtful Accounts is a $300 credit.The estimated amount of bad debts expense is $3,200

Question 44

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.

Question 45

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

Question 46

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 6% of outstanding receivables are uncollectible.The current credit balance (before adjustments)in the allowance for doubtful accounts is $1,200.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.

Question 47

The percent of sales method of estimating bad debts focuses more on the realizable value of accounts receivable than on expense recognition.

Question 48

A maker who dishonors a note is one pays at maturity.

Question 49

A note that the maker does not pay at maturity is called a dishonored note.

Question 50

It is not advisable to accept a note receivable in exchange for an overdue account receivable.

Question 51

When a note receivable is dishonored,it reverts to an account receivable.

Question 52

A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible.The estimated amount of bad debts expense is $3,500.

Question 53

The notes receivable account of a business should include both the notes that have not yet matured and the dishonored notes.

Question 54

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.

Question 55

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

Question 56

Notes receivable are classified as current liabilities regardless of the time to maturity.

Question 57

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

Question 58

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.

Question 59

The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due,the higher the likelihood of collection.

Question 60

Installment accounts receivable is another name for aging of accounts receivable.

Question 61

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.)

A)$900
B)$75
C)$450
D)$300
E)$1,800

Question 62

A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

A)A cash equivalent.
B)An account receivable.
C)A note receivable.
D)A short-term investment.
E)A note payable.

Question 63

The person who signs a note receivable and promises to pay the principal and interest is the:

A)Maker.
B)Payee.
C)Holder.
D)Receiver.
E)Owner.

Question 64

Separate accounts receivable information for each customer is important because it reveals all of the following except:

A)How much each customer has purchased on credit.
B)How much each customer has paid.
C)How much each customer still owes.
D)The basis for sending bills to customers.
E)When the customer intends to pay outstanding balances.

Question 65

The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)

A)$450.00.
B)$37.50.
C)$112.50.
D)$11.25.
E)$1,800.00.

Question 66

Sellers allow customers to use bank (or third-party)credit cards for all of the following reasons except:

A)To be able to charge more due to fees and interest.
B)To avoid the risk of customers not paying.
C)To speed up receipt of cash from the credit sale.
D)To increase total sales.
E)To avoid having to decide who gets credit and how much.

Question 67

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

A)Allows firms to receive cash earlier.
B)Passes ownership of the receivables to the factor.
C)There are no fees for factoring.
D)Seller avoids the cost of billing and accounting for receivables.
E)May pass the risk of bad debts to the factor.

Question 68

A company receives a 10%,120-day note for $1,500.The total interest due on the maturity date is: (Use 360 days a year.)

A)$50.00.
B)$150.00.
C)$75.00.
D)$37.50.
E)$87.50.

Question 69

A company pledges their receivables so they may

A)Collect a pledge fee.
B)Borrow money.
C)Charge a factoring fee.
D)Increase sales.
E)Recognize a sale.

Question 70

Dishonoring a note means the maker no longer has to pay.

Question 71

The maturity date of a note receivable:

A)Is the day of the credit sale.
B)Is the day the note was signed.
C)Is the day the note is due to be repaid.
D)Is the date of the first payment.
E)Is the last day of the month.

Question 72

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

A)Payer.
B)Pledger.
C)Factor.
D)Payee.
E)Pledgee.

Question 73

Which of the following is not true regarding a bank (or third party)credit card expense?

A)Credit card expense may be classified as a "discount" deducted from sales to get net sales.
B)Credit card expense may be classified as a selling expense.
C)Credit card expense may be classified as an administrative expense.
D)Credit card expense is not recorded by the seller.
E)Credit card expense is a fee the seller pays for services provided by the card company.

Question 74

A company borrowed $10,000 by signing a 180-day promissory note at 9%.The total to be paid at maturity of the note is: (Use 360 days a year.)

A)$10,450
B)$10,900
C)$10,075
D)$11,800
E)$10,300

Question 75

A credit sale of $5,275 to a customer would result in which of the following?

A)A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.
B)A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.
C)A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.
D)A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.
E)A credit to Sales and a credit to the customer's account in the accounts receivable subsidiary ledger.

Question 76

Accrued interest on outstanding notes receivable should be recorded at the end of each accounting period.

Question 77

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 a 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.

Question 78

A promissory note:

A)Is a short-term investment for the maker.
B)Is a written promise to pay a specified amount of money at a certain date.
C)Is a liability to the payee.
D)Is another name for an installment receivable.
E)Cannot be used in payment of an account receivable.

Question 79

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.

Question 80

A 90-day note issued on April 10 matures on:

A)July 9.
B)July 10.
C)July 11.
D)July 12.
E)July 13.