Question 1

Major advantages of credit cards to the retailer include all of the following except the

Accepted Answer

Credit card issuers charge retailers a processing fee for each transaction, typically around 2-3% of the purchase amount. Therefore, the retailer does not receive more cash from the credit card issuer; in fact, they receive less cash due to the processing fee. However, the issuer does handle the credit investigation and collection process, which can save the retailer time and resources.

Question 2

A 30-day note dated June 14 has a maturity date of

Accepted Answer

A 30-day note means it will mature 30 days from the date it was issued. June has 30 days, so July 14 is 30 days after June 14. Therefore the maturity date is July 14.

Question 3

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n)

Accepted Answer

The service charge of a factor is a cost incurred by the retailer to obtain financing through the sale of its receivables. This cost is similar to other selling expenses, such as advertising, sales commissions, and trade discounts, that are needed to generate revenue. Therefore, the service charge of a factor should be classified as a selling expense in the income statement of the retailer.

Question 4

The retailer considers Visa and MasterCard sales as

Accepted Answer

Retailers consider Visa and MasterCard sales as cash sales because the funds are typically deposited into the retailer's account by the card processor within a few days, similar to cash transactions.

Question 5

When customers make purchases with a national credit card, the retailer

Accepted Answer

When customers make purchases with a national credit card, the retailer is not involved in the collection process. The credit card company handles the collection of payments from customers, relieving the retailer of this responsibility.

Question 6

A 90-day note dated May 14 has a maturity date of

Accepted Answer

The answer of A 90-day note dated May 14 has...

Question 7

On March 1, 2014, Joe Miles purchased a suit at Calvin's Fine Apparel Store. The suit cost $300 and Joe used his Calvin credit card. Calvin charges 2% per month interest if payment on credit charges is not made within 30 days. On April 30, 2014, Joe had not yet made his payment. What entry should Calvin make on April 30th?

Accepted Answer

The answer of On March 1, 2014, Joe Miles purchased...

Question 8

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables?

Accepted Answer

The answer of A company regularly sells its receivables to...

Question 9

Oliver Furniture factors $800,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 2% service charge on the amount of receivables sold. Oliver Furniture factors its receivables regularly with Kwik Factors. What journal entry does Oliver make when factoring these receivables?

Accepted Answer

The answer of Oliver Furniture factors $800,000 of receivables to...

Question 10

The sale of receivables by a business

Accepted Answer

The sale of receivables by a business can be a quick way to generate cash for operating needs. It is not necessarily an indication that the business is in financial difficulty, nor is it generally the major revenue item on its income statement, and it does not necessarily indicate that the business is owned by a factor.

Question 11

On October 1, 2014, Brosnan Company sells (factors) $500,000 of receivables to Nation Factors, Inc. Nation assesses a service charge of 3% of the amount of receivables sold. The journal entry to record the sale by Brosnan will include:

Accepted Answer

The answer of On October 1, 2014, Brosnan Company sells...

Question 12

A 60-day note receivable dated May 13 has a maturity date of

Accepted Answer

60 days after May 13 is July 12.

Question 13

If a company sells its accounts receivables to a factor,

Accepted Answer

When a company sells its accounts receivables to a factor, the seller typically pays a commission to the factor for this service. The factor then takes on the responsibility of collecting the receivables.

Question 14

Retailers generally consider sales from the use of national credit card sales as a

Accepted Answer

National credit card sales are considered cash sales because the retailer receives the funds immediately from the credit card company, similar to receiving cash.

Question 15

Assuming a 360-day year, the maturity value of a ¥900,000, 10%, 60-day note receivable dated July 3 is

Accepted Answer

The formula for calculating the maturity value of a note receivable is:

Maturity value = Principal + (Principal x Rate x Time)

Where:
- Principal = ¥900,000
- Rate = 10%
- Time = 60/360 (since there are 360 days in a year and the note is for 60 days)

Maturity value = ¥900,000 + (¥900,000 x 10% x 60/360)
Maturity value = ¥900,000 + ¥15,000
Maturity value = ¥915,000

Therefore, the maturity value of the note is ¥915,000, which is closest to option D: ¥915,000.

Question 16

ABC Company accepted a national credit card for a €7,500 purchase. The cost of the goods sold is €6,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

Accepted Answer

The credit card company charges a 3% fee on the purchase, which is €225 (3% of €7,500). Therefore, the net revenue earned by ABC Company on this sale is €7,275 (€7,500 - €225). 
However, since the cost of goods sold is €6,000, the gross profit earned by ABC Company is €1,275 (€7,500 - €6,000). 
Therefore, the impact on net operating income would only be an increase of the gross profit earned, which is €1,275.

Question 17

Receivables might be sold to

Accepted Answer

Receivables might be sold to generate cash quickly. Factoring or selling receivables allows a company to convert its outstanding customer invoices into immediate cash. This helps the company maintain adequate cash flows and reduces the risk of bad debt. Lengthening the cash-to-cash operating cycle (A) would not be a reason to sell receivables, as it would result in delaying the conversion of receivables to cash. Deep discounts on the cash realizable value of receivables (B) would actually result in a loss for the company and is not a desirable option. Selling receivables at an amount greater than cash realizable value (D) is not feasible as it exceeds the actual value of the receivables.

Question 18

Newland Retailers accepted $90,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Newland Retailers will include a credit to Sales Revenue of $90,000 and a debit(s) to

Accepted Answer

Newland Retailers will receive $86,400 ($90,000 - $3,600) from Citibank due to the 4% service charge imposed on credit card use. Therefore, there will be a debit to Cash for $86,400 and a debit to Service Charge Expense for $3,600. The credit will be made to Sales Revenue for the full amount of $90,000.

Question 19

A promissory note

Accepted Answer

A promissory note is a formal credit instrument that contains a written promise by one party (the maker) to pay a specified sum of money to another party (the payee) at a specified time or on demand. It can be used to settle an accounts receivable, meaning that a business can accept a promissory note as payment from a customer who owes them money. However, the party to whom the money is due is the payee, not the maker. Promissory notes can be factored to another party, meaning that the payee can sell the right to collect the money to a third party (the factor) in exchange for immediate cash.

Question 20

The basic issues in accounting for notes receivable include each of the following except

Accepted Answer

Analyzing notes receivable is not considered a basic issue in accounting for notes receivable. The primary concerns are recognizing, valuing, and disposing of them. Analyzing notes receivable might be part of a broader financial analysis but is not a fundamental accounting issue for these instruments.

Quiz 8: Accounting for Receivables