Question 1

Match each of the following terms with the appropriate definitions.
-A written promise to pay a specified amount of money,usually with interest,either on demand or at a definite future date.

Accepted Answer

A promissory note is a financial instrument that contains a written promise by one party (the maker) to pay another party (the payee) a definite sum of money, either on demand or at a specified future date, typically with interest.

Question 2

Match each of the following terms with the appropriate definitions.
-A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible.

Accepted Answer

The Allowance for Doubtful Accounts is a contra asset account associated with accounts receivable that estimates the portion of receivables expected to be uncollectible.

Question 3

Winkler Company borrows $85,000 and pledges its receivables as security.The journal entry to record this transaction would be:

Accepted Answer

Since Winker Company is borrowing money and pledging its receivables as security, the journal entry should reflect the increase in cash and the increase in the liability (notes payable). Therefore, we would debit Cash for $85,000 and credit Notes Payable for $85,000. None of the other options accurately reflect the transaction described.

Question 4

Under IFRS,the term provision:

Accepted Answer

Under IFRS, the term provision usually refers to a liability whose amount or timing is uncertain, such as a provision for warranties or environmental liabilities. It is not an expense, contra-asset account, or asset account, and is not specifically associated with bad debts.

Question 5

Match each of the following terms with the appropriate definitions.
-The charge a borrower pays for using money borrowed.

Accepted Answer

Interest is the charge a borrower incurs for the privilege of borrowing money. It is the cost paid on borrowed funds, typically expressed as a percentage of the total amount loaned.

Question 6

All of the following statements regarding recognition of receivables under U.S.GAAP and IFRS are true except:

Accepted Answer

Under U.S. GAAP, the term "provision" is not typically used in the context of receivables; instead, the term "allowance for doubtful accounts" or "allowance for credit losses" is used to refer to the estimated amount of receivables that may not be collected. The term "provision" is more commonly used in IFRS to refer to a liability of uncertain timing or amount.

Question 7

Match each of the following terms with the appropriate definitions.
-The uncollectible accounts of credit customers who do not pay what they have promised.

Accepted Answer

Bad debts refer to the uncollectible accounts of credit customers who fail to fulfill their payment obligations.

Question 8

Match each of the following terms with the appropriate definitions.
-Amounts due from customers for credit sales.

Accepted Answer

Accounts receivable refers to the amounts that are due from customers for credit sales, representing the money that customers owe to the business for purchases made on credit.

Question 9

All of the following statements regarding valuation of receivables under U.S.GAAP and IFRS are true except:

Accepted Answer

Both U.S. GAAP and IFRS require the use of the allowance method for estimating uncollectible accounts, which involves estimating and recording the expense for uncollectibles in the same period as the revenues are recorded, not when the receivable is actually determined to be uncollectible. This is contrary to the direct write-off method, where the expense is recorded only when the receivable is deemed uncollectible.

Question 10

Match each of the following terms with the appropriate definitions.
-The expected proceeds from converting an asset into cash.

Accepted Answer

Realizable value is the expected proceeds from converting an asset into cash, reflecting the amount that a company anticipates receiving in cash from an asset.

Question 11

Majesty Productions accepted a $7,200,120-day,6% note from Swartz Studio on March 1.On the date the note matures,Swartz is unable to pay,but Majesty intends to continue collection efforts.What entry should Majesty record on the maturity date for this dishonored note?

Accepted Answer

Interest: $7,200 * .06 * 120/360 = $144

Question 12

On February 1,a customer's account balance of $2,300 was deemed to be uncollectible.What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

Accepted Answer

Under the allowance method, a company estimates bad debts based on a percentage of credit sales or accounts receivable. This estimated amount is recorded in the Allowance for Doubtful Accounts. When a specific account is deemed uncollectible, the balance is written off by reducing the Accounts Receivable and Allowance for Doubtful Accounts by the same amount. Therefore, the correct entry would be to debit Allowance for Doubtful Accounts $2,300 and credit Accounts Receivable $2,300. Option C is the only one that reflects this entry. Option A, D, and E are incorrect because they do not involve the Allowance for Doubtful Accounts. Option B is incorrect because it involves debiting the allowance account instead of reducing it.

Question 13

MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card.Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made.The journal entry to record this sale transaction would be:

Accepted Answer

The journal entry should be recorded as a reduction in the amount of cash received due to the service charge deducted by Regional Bank. Therefore, debit Cash for $295.50 ($300 - $4.50 service charge) and debit Credit Card Expense for $4.50, and credit Sales for $300.

Question 14

Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security.Which of the following is true regarding this transaction:

Accepted Answer

When Frederick Company pledges its receivables as security for a loan from First City Bank, it must disclose this information in its financial statements. This is because pledging of receivables can impact the company's liquidity and solvency ratios. Option A is incorrect because First City Bank is not acting as a factor, which involves the purchase of receivables rather than accepting them as collateral. Option C is incorrect because Frederick Company still has the risk of bad debts since the receivables are only being used as collateral. Option D is incorrect because First City Bank does not take ownership of the receivables, but rather has the right to seize them if the loan is not repaid. Option E is incorrect because a journal entry is necessary to record the loan and the pledging of receivables as collateral.

Question 15

Match each of the following terms with the appropriate definitions.
-A process of classifying accounts receivable by how long it is past its due date for the purpose of estimating the amount of uncollectible accounts.

Accepted Answer

The aging of accounts receivable process involves categorizing accounts receivable according to how long invoices have been outstanding. This helps businesses estimate the amount of accounts that may not be collectible.

Question 16

MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card.Regional Bank deducts a 4% service charge for sales on its credit cards.MacKenzie electronically remits the credit card sales receipts to the credit card company and receives payment immediately.The journal entry to record this sale transaction would be:

Accepted Answer

The sale amount is $180 but because the credit card company charges a 4% service charge, the amount received by MacKenzie Company is only $172.80 ($180 - ($180 x 4%)). Therefore, Cash account should be debited for $172.80. The service charge of $7.20 ($180 x 4%) should be recognized as Credit Card Expense, which is an expense account. Finally, the Sales account should be credited for $180. So, the journal entry would be Debit Cash $172.80, Debit Credit Card Expense $7.20, and Credit Sales $180.

Question 17

Match each of the following terms with the appropriate definitions.
-The accounting principle that requires expenses to be reported in the same period as the sales they helped to produce.

Accepted Answer

The expense recognition (matching) principle in accounting states that expenses should be recognized in the period in which they are incurred to produce revenues, aligning expenses with the revenues they help generate.

Question 18

Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card.National Bank deducts a 3% service charge for sales on its credit cards.Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately.The journal entry to record the collection from the credit card company would be:

Accepted Answer

The answer of Kenai Company sold $600 of merchandise to...

Question 19

Mullis Company sold merchandise on account to a customer for $625,terms n/30.The journal entry to record the collection on account would be:

Accepted Answer

When a company collects on an account, it increases its cash balance and decreases its accounts receivable balance. Therefore, the correct journal entry is to debit Cash (to increase cash) and credit Accounts Receivable (to decrease accounts receivable).

Question 20

Mullis Company sold merchandise on account to a customer for $625,terms n/30.The journal entry to record this sale transaction would be:

Accepted Answer

Since the sale was made on account, the accounts affected are Accounts Receivable and Sales. Since the sale was for $625, both accounts will be credited and debited with the same amount. Therefore, the correct journal entry is Debit Accounts Receivable $625 and Credit Sales $625.

Quiz 7: Accounting for Receivables

Match each of the following terms with the appropriate definitions. -A written promise to pay a specified amount of money,usually with interest,either on demand or at a definite future date.

Match each of the following terms with the appropriate definitions. -A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible.

Winkler Company borrows $85,000 and pledges its receivables as security.The journal entry to record this transaction would be:

Under IFRS,the term provision:

Match each of the following terms with the appropriate definitions. -The charge a borrower pays for using money borrowed.

All of the following statements regarding recognition of receivables under U.S.GAAP and IFRS are true except:

Match each of the following terms with the appropriate definitions. -The uncollectible accounts of credit customers who do not pay what they have promised.

Match each of the following terms with the appropriate definitions. -Amounts due from customers for credit sales.