Question 1

Jazz Company lends Sullivan Company $30,000 on August 1, 2019 in exchange of a 9-month, 12% interest note. If Jazz Company accrued interest on its December 31, 2019 year-end, what is the financial statement effect of the collection of the note and interest at its maturity date?

Accepted Answer

The answer of Jazz Company lends Sullivan Company $30,000 on...

Question 2

On November 1, Kotler Company accepted a 3-month note receivable as payment for services provided to Norman Company. The face value was $9,000, and it had a stated 6% annual rate of interest. Kotler Company made the required accrual on December 31.
On February 1, the entry to record the collection of the note should include:

Accepted Answer

The answer of On November 1, Kotler Company accepted a...

Question 3

A company is holding a $6,000, 90-day, 6% note receivable, dated December 1. The entry to record accrued interest at the end of its fiscal year on December 31 will include:

Accepted Answer

The interest for 30 days (December 1 to December 31) on a $6,000 note at 6% annual interest is calculated as follows: Interest = Principal × Rate × Time = $6,000 × 6% × (30/365) = $29.59, which rounds to $30. This amount represents the interest accrued at year-end and is recorded as an increase to Interest Receivable.

Question 4

A company received a Note Receivable from a customer for a sale. The 9 percent, 9-month note was received on May 31 for an amount of $150,000. Determine the company's accrued interest receivable (from this note) on its December 31 balance sheet.

Accepted Answer

The interest for the note is calculated as Principal x Rate x Time = $150,000 x 9% x (7/12) = $7,875. The time is 7 months because from May 31 to December 31 is 7 months.

Question 5

On December 1, 2019, Montgomery Company accepts a $12,000, 90 day, 8% note from a customer. If Montgomery Company's accounting period ends on December 31, and the note is collected on March 1, 2020, which one of the following statements will be true for Montgomery Company?

Accepted Answer

Interest for December (1 month) is $80 ($12,000 x 8% x 1/12). On December 31, 2019, Montgomery Company will record this as Interest Receivable. On March 1, 2020, when the note is collected, they will reduce Interest Receivable by $80.

Question 6

On December 1, 2019, Temps Company accepted a $12,000, 120 day, 8% note from a customer in granting an extension to a past due account. Temps Company's accounting period ends on December 31, and the note is collected in full on the due date.
Which one of the following statements will be false for Temps Company?

Accepted Answer

Interest for the note is calculated as follows: $ \frac{12,000 \times 8\% \times 120}{365} = 263.01 $ approximately. This means that by December 31, 2019, the company would not reduce Interest Receivable for $80 because the interest for December (one month) would be approximately $ \frac{12,000 \times 8\% \times 31}{365} = 81.92 $, and they would actually increase Interest Receivable, not reduce it, to reflect the interest earned but not yet received.

Question 7

Which of the following formula computes the average collection period?

Accepted Answer

The average collection period is calculated by dividing 365 days by the accounts receivable turnover ratio, which measures how many times a company collects its average accounts receivable in a year. This formula helps businesses understand how long it takes, on average, to collect payments from customers.

Question 8

If the collection period lengthens compared to historic figures and industry averages, what might the reason be?

Accepted Answer

A longer collection period could indicate a deterioration in the collectability of receivables or a shift in sales to customers who take longer to pay, both of which are covered in options A and B. Option C, a decrease in sales, does not directly affect the length of the collection period.

Question 9

Jackson, Inc. had net sales of $900,000 during 2019. On January 1, 2019, Jackson's accounts receivable were $160,000. On December 31, 2019 Jackson's accounts receivable were $200,000.
What was Jackson's accounts receivable turnover for 2019?

Accepted Answer

The accounts receivable turnover is calculated as net sales divided by average accounts receivable. The average accounts receivable is ($160,000 + $200,000) / 2 = $180,000. Therefore, the turnover is $900,000 / $180,000 = 5.

Question 10

Jackson, Inc. had net sales of $900,000 during 2019. On January 1, 2019, Jackson's accounts receivable were $160,000. On December 31, 2019, Jackson's accounts receivable were $200,000.
What was Jackson's average collection period for 2019?

Accepted Answer

Average collection period = (Average accounts receivable / Net sales) x 365 daysAverage accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2= ($160,000 + $200,000) / 2= $180,000Average collection period = ($180,000 / $900,000) x 365 days= 0.2 x 365 days= 73 days

Question 11

Quick Market reports the following analysis of potential losses in its accounts receivable:
The balance of Allowance for Doubtful Accounts is $200 on December 31, 2019 prior to adjustments.
  Required:
a. Compute bad debt expense that will be recorded for 2019. Round your calculations to the nearest dollar.
b. What is the net realizable value of accounts receivable to be reported on Quick Market's December 31, 2019 balance sheet?

Accepted Answer

The answer of Quick Market reports the following analysis of...

Question 12

Oliver, Inc. estimated uncollectible accounts receivable at December 31, 2019 at $3,372, based on estimates on various ages of receivables and before learning of the bankruptcy of one of its customers. The customer owed $1,340, and the legal department has estimated costs to collect the balance owed by this customer at $2,000. The gross receivables balance on December 31, 2019 after write-offs is $84,300, and the allowance for doubtful accounts balance is $3,620 at December 31, 2018. At December 12, 2019, the company wrote off $1,700 other accounts deemed uncollectible. 
Required:
a. How would the legal department advise Oliver to handle the collection of the $1,340?
b. What is the amount of Bad Debt Expense Oliver will report for 2109, assuming that both the $1,700 and $1,340 have been written off.
c. What is the effect of the $1,700 write off on gross and net accounts receivable?

Accepted Answer

The answer of Oliver, Inc. estimated uncollectible accounts receivable at...

Question 13

Forrester Inc. provided the following aging of its receivables at December 31. 
  
During the year, $6,256 of receivables were written off. The balance at the beginning of the year in the allowance account was $6,000.
Required:
a. How much will Forrester report as bad debt expense for the year? Round your calculations to the nearest dollar.
b. How much is the net realizable value of Forrester's receivables at year end?

Accepted Answer

The answer of Forrester Inc. provided the following aging of...

Question 14

Likert Co. reports the following in its 2019 annual report (amounts in thousands):
  
Calculate the accounts receivable turnover and average collection period for 2019 and 2018. Comment on the findings.

Accepted Answer

The answer of Likert Co. reports the following in its...

Question 15

At December 31, 2019, Hanna Toys had a balance of $82,700 in its Accounts Receivable account and a balance of $300 in its Allowance for Doubtful Accounts account. The company analyzed and aged its accounts receivable based on the following estimated uncollectible amounts:
 
 The company bases its provision for credit losses on the aging analysis.
Required:
a. What amount of bad debt expense will Hanna Toys report in its 2019 income statement? Round all your calculations to the nearest dollar.
b. How would Accounts Receivable and the Allowance for Doubtful Accounts appear in its December 31, 2019, balance sheet?

Accepted Answer

The answer of At December 31, 2019, Hanna Toys had...

Question 16

Rexbilt Company estimates its credit losses at 2% of credit sales, which were $600,000 this year. At December 31 of this year, the Accounts Receivable balance is $90,000, and the Allowance for Doubtful Accounts has a $1,200 balance before adjustment. 
Required:
a. What amount of bad debt expense will Rexbilt report for this year.
b. What net amount of accounts receivable would appear on the December 31 balance sheet this year?
c. Assume that Rexbilt Company uses aged accounts receivable as a basis of estimating credit losses, instead of a percent of credit sales. If the firm estimates that $7,600 of the accounts will prove uncollectible, what amount of bad debt expense will Rexbilt report for this year?

Accepted Answer

The answer of Rexbilt Company estimates its credit losses at...

Question 17

On January 1 of the current year, Slaton, Inc. had the following accounts on its books: 
 
 During this year, credit sales were $600,000 and collections on account were $580,000.
Required:
a. Prepare general journal entries for the following transactions that occurred during the year:
(1) Wrote off L. Baxter's account, $3,400.
(2) Wrote off N. Vale's account, $1,200.
(3) N. Vale, who is in bankruptcy, paid $400 in final settlement of the account written off in transaction (2). This amount is not included in the $580,000 collections.
(4) On December 31, estimated the year's bad debts expense at 1% of credit sales.
b. Determine the balance of Accounts Receivable and the Allowance for Doubtful Accounts at year-end.

Accepted Answer

The answer of On January 1 of the current year,...

Question 18

At December 31 of the current year, Roberts Company had a balance of $364,000 in its Accounts Receivable account and a balance of $3,000 in the Allowance for Doubtful Accounts. The company has aged its accounts as follows: 
  In the past, the company has experienced losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over 180 days past due. The company bases its bad debt expense on the aging analysis.
Required:
a. Determine the amount of bad debt expense for the year.
b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.
c. On January 15 of the subsequent year, Roberts Company wrote off the account of B. Jensen, $1,200. What if the effect on gross receivables and total assets of the write off?
d. On February 20 of the subsequent year, Roberts Company collected the $1,200 on the Jensen account written off on January 15. What is the effect on the Allowance for Doubtful Accounts and Total Assets as a result of the recovery?

Accepted Answer

The answer of At December 31 of the current year,...

Question 19

Smith's accounts receivable financial data (in millions) for three years are listed below: 
  Required:
a. Calculate the net realizable value of receivables that will be reported on Smith's balance sheet for each year.
b. Determine the accounts receivable turnover for 2019 and 2018.
c. Compare the accounts receivable turnovers for 2019 and 2018 and comment on the differences.

Accepted Answer

The answer of Smith's accounts receivable financial data (in millions)...

Question 20

Define accounts receivable turnover and the average collection period. What insights do these ratios offer an analysis of a company's accounts receivable?

Accepted Answer

The answer of Define accounts receivable turnover and the average...

Quiz 6: Receivables