Question 1

Prior to adjustments, Willett Company's account balances at December 31, 2018, for Accounts Receivable and the related Allowance for Uncollectible Accounts were $2,700,000 and $120,000, respectively. An aging of accounts receivable indicated that $207,000 of the December 31, 2018, receivables may be uncollectible. The net realizable value of accounts receivable at December 31, 2018, was ________.

Accepted Answer

The net realizable value of accounts receivable is calculated by subtracting the allowance for uncollectible accounts from the accounts receivable balance. The allowance needs to be adjusted to $207,000 based on the aging analysis. Therefore, the net realizable value is $2,700,000 - $207,000 = $2,493,000.

Question 2

Marston Company has outstanding accounts receivable totaling €1.5 million as of December 31 and sales on credit during the year of €24 million. There is also a credit balance of €2,000 in the allowance for doubtful accounts as of December 31. After aging its receivables, the company estimates that 8% of its total outstanding receivables will be uncollectible. What will be the amount of bad debt expense recognized for the year?

Accepted Answer

The answer of Marston Company has outstanding accounts receivable totaling...

Question 3

During the year, Liptom Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $60,000 and the balance in the allowance account was $4,500 (normal balance). What is the net realizable value of accounts receivable after the write-off entry?

Accepted Answer

The net realizable value of accounts receivable is calculated as Accounts Receivable minus the Allowance for Doubtful Accounts. After the write-off, Accounts Receivable is $56,000 ($60,000 - $4,000) and the Allowance remains $500 ($4,500 - $4,000), so the net realizable value is $55,500 ($56,000 - $500).

Question 4

In which of the following situations are a company's receivables held as collateral for a financing situation?

Accepted Answer

Pledging involves using receivables as collateral for a loan, where the company retains ownership of the receivables but uses them to secure financing.

Question 5

Marston Company has outstanding accounts receivable totaling €4.5 million as of December 31 and sales on credit during the year of €20 million. There is also a credit balance of €18,000 in the allowance for doubtful accounts. After aging its receivables, the company estimates that 2% of its receivables will be uncollectible. What will be the balance for the Allowance for Uncollectible Accounts after the year-end adjustment is made to record bad debt expense?

Accepted Answer

The estimated uncollectible amount is 2% of €4.5 million, which is €90,000. The existing credit balance of €18,000 in the allowance account means the adjustment needed is €72,000 (€90,000 - €18,000), resulting in a final balance of €90,000.

Question 6

Factored receivables have been sold to another company.

Accepted Answer

Factored receivables involve selling accounts receivable to a third party (a factor) to obtain immediate cash.

Question 7

Teeter Company began 2018 with accounts receivable of $400,000 and an allowance for uncollectible accounts of $29,000 (credit balance). Bad debt expense for the year was $36,000 and the ending balance in the allowance for uncollectible accounts account was $13,000. What was the amount of accounts receivable written off during the year?

Accepted Answer

The amount of accounts receivable written off is calculated as: Beginning Allowance ($29,000) + Bad Debt Expense ($36,000) - Ending Allowance ($13,000) = $52,000.

Question 8

Factored receivables sold without recourse are classified as a liability.

Accepted Answer

Factored receivables sold without recourse are not classified as a liability; they are removed from the balance sheet as the risk of collection is transferred to the buyer.

Question 9

Securitization of receivables involves taking many separate receivables and bundling them into a single investment pool.

Accepted Answer

Securitization of receivables involves pooling various receivables, such as loans or mortgages, into a single financial instrument that can be sold to investors, thereby converting them into marketable securities.

Question 10

Securitization of receivables eliminates the risk of non-collection.

Accepted Answer

Securitization of receivables transfers the risk of non-collection to investors, but it does not eliminate the risk entirely.

Question 11

Teeter Company wrote off an account for $15,000 which was subsequently recovered. Record the journal entries upon the recovery.

Accepted Answer

The answer of Teeter Company wrote off an account for...

Question 12

What factors are considered when estimating bad debt expense?

Accepted Answer

The answer of What factors are considered when estimating bad...

Question 13

Lithotech, Inc. had net sales in 2018 of $800,000. At December 31, 2018, before adjusting entries, the balances in selected accounts were: accounts receivable $126,000 debit, and allowance for doubtful accounts $1,400 debit. Lithotech estimates that 1% of its receivables will prove to be uncollectible. What is the net realizable value of the receivables reported on the statement of financial position at December 31, 2018 after adjusting entries?

Accepted Answer

The allowance for doubtful accounts should be adjusted to 1% of accounts receivable, which is $1,260 (1% of $126,000). The current balance is a $1,400 debit, so an adjustment of $2,660 credit is needed. The net realizable value is $126,000 - $2,660 = $123,340.

Question 14

To be recognized as a sale under IFRS, factored receivables do not have to be isolated.

Accepted Answer

Under IFRS, factored receivables do not have to be isolated to be recognized as a sale. This is because the transfer of risks and rewards has occurred, even though the receivables may still be on the company's balance sheet.

Question 15

Pledged receivables are collateral for a financing arrangement.

Accepted Answer

Pledged receivables are used as collateral in a financing arrangement to secure a loan or credit line, ensuring the lender has a claim on the receivables if the borrower defaults.

Question 16

To be recognized as a sale under IFRS, companies must give up effective control of factored receivables.

Accepted Answer

The answer of To be recognized as a sale under...

Question 17

Pledged receivables are reported as current assets while assigned receivables are reported as non-current assets. The pledged and assigned receivables are used as collateral for a long-term obligation.

Accepted Answer

Pledged and assigned receivables are typically reported as current assets if they are expected to be collected within one year, regardless of their use as collateral for long-term obligations.

Question 18

On January 1, 2018, Willett Company's account balances for Accounts Receivable and the related Allowance for Uncollectible Accounts were $3,600,000 and $90,000, respectively. During the year, sales revenue totaled $40 million, of which 70% were credit sales and the remainder were cash sales. Altogether, cash collections from all customers amounted to $30 million. Also, write-offs of accounts deemed to be uncollectible totaled $250,000. At the end of the year, an analysis of aged accounts receivable indicated that 2% of total gross receivables may be uncollectible.
Required:
Determine the amount of bad debt expense for the year and net realizable value of receivables at the end of the year.

Accepted Answer

The answer of On January 1, 2018, Willett Company's account...

Question 19

Lithotech, Inc. had net sales in 2018 of $800,000. At December 31, 2018, before adjusting entries, the balances in selected accounts were: accounts receivable $122,000 debit, and allowance for doubtful accounts $1,200 credit. Lithotech estimates that 2% of its receivables will prove to be uncollectible. What is the net realizable value of the receivables reported on the statement of financial position at December 31, 2018 after adjusting entries?

Accepted Answer

The allowance for doubtful accounts should be adjusted to 2% of $122,000, which is $2,440. The adjustment needed is $1,240 ($2,440 - $1,200). The net realizable value is $122,000 - $2,440 = $119,560.

Question 20

In which of the following situations are a company's receivables sold to another entity?

Accepted Answer

Factoring involves selling a company's receivables to another entity, often a financial institution, to obtain immediate cash.

Quiz 9: Short-Term Operating Assets: Cash and Receivables