Question 1

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" typically refers to an expense rather than a liability. The correct term for a liability whose amount or timing is uncertain under U.S. GAAP is "contingent liability." This choice incorrectly describes the term "provision" in the context of U.S. GAAP.

Question 2

Under IFRS, the term provision:

Accepted Answer

Under IFRS, a provision is defined as a liability of uncertain timing or amount. It is recognized when an entity has a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Question 3

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

Accepted Answer

When a company borrows money and pledges its receivables as security, it creates a note payable. Therefore, the correct journal entry would be to debit Cash for $85,000 and credit Notes Payable for $85,000.

Question 4

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 a company pledges its receivables as security for a loan, it must disclose this information in its financial statements. Choice A is incorrect because a factor is a third party that buys receivables outright, not one that provides a loan secured by receivables. Choice C is incorrect because the risk of bad debts still exists for Frederick Company even though it has pledged its receivables. Choice D is incorrect because the bank only has a security interest in the receivables, not ownership. Choice E is incorrect because a journal entry is required to record the pledge of receivables and the corresponding increase in liabilities.

Question 5

On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as payment on a past-due account. What adjusting entry should be made on the December 31 year-end?

Accepted Answer

Since the note was for 60 days and was received on November 19, the maturity date would be January 18 of the following year (60 days later). Therefore, on December 31 (43 days after receiving the note), there would be accrued interest for 43/365 of a year (using a 365-day year).

The calculation would be: 
$15,000 x 0.08 x 43/365 = $140.11 (rounded to $140)

Therefore, the adjusting entry on December 31 would be:
Debit Interest Receivable $140; credit Interest Revenue $140.

Question 6

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

Accepted Answer

The answer of All of the following statements regarding valuation...

Question 7

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 in approximately 5 days. The journal entry to record this sale transaction would be:

Accepted Answer

The 4% service charge deducted by Regional Bank is a Credit Card Expense for MacKenzie Company. Therefore, the amount received will be $172.80 ($180 - $7.20). The Accounts Receivable-Regional account will also be debited for the total amount of the sale, which is $180. Therefore, the entry would be:
Debit Accounts Receivable-Regional $180
Debit Credit Card Expense $7.20
Credit Sales $180
This entry correctly records the sale transaction and the service charge deducted by the credit card company.

Question 8

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

This transaction involves a sale on account, which means that the customer will pay the amount due at a later date. The accounts involved in this transaction are Accounts Receivable (since the customer owes money to the company) and Sales (since the company has sold merchandise). The journal entry to record this transaction is to debit Accounts Receivable for $625 and credit Sales for $625.

Question 9

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts:  All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Accepted Answer

The answer of The unadjusted trial balance at year-end for...

Question 10

On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer to settle a past-due account. What entry should be made on November 1 to record the note acceptance?

Accepted Answer

When a company accepts a note receivable, it debits Note Receivable and credits the account that was previously receivable (in this case, Accounts Receivable).

Question 11

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 reflect the net amount received by MacKenzie Company after the service charge is deducted by the bank. The cash received is $300 * (1 - 1.5%) = $295.50. The $4.50 service charge is recorded as a debit to Credit Card Expense. The Sales account is credited for the full amount of $300.

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, the expected uncollectible accounts are estimated and recorded in a contra-asset account called Allowance for Doubtful Accounts. When it is determined that a specific account is uncollectible, the Accounts Receivable balance is reduced by the amount of the write-off, and the Allowance for Doubtful Accounts is also reduced by the same amount, to reflect the already recorded estimated loss. Therefore, the correct entry for the write-off of a $2,300 account is to debit the Allowance for Doubtful Accounts for $2,300, and credit the Accounts Receivable for $2,300.

Question 13

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 in approximately 5 days. The journal entry to record the collection from the credit card company would be:

Accepted Answer

The answer of MacKenzie Company sold $180 of merchandise to...

Question 14

Stacey Corp. uses the direct write-off method to account for bad debts. On May 26 the company determines that a customer account with a balance of $750 is uncollectible. The journal entry to record this loss is:

Accepted Answer

The direct write-off method requires that bad debts be recorded as expenses at the time they are determined to be uncollectible. Therefore, the journal entry would be to debit Bad Debts Expense for $750 and credit Accounts Receivable for $750 to reflect the loss. The other answer choices do not accurately reflect this method of accounting for bad debts.

Question 15

Amounts owed by customers from credit sales for which payment is required in periodic amounts over an extended time period are referred to as:

Accepted Answer

Installment Accounts Receivable are amounts owed by customers from credit sales for which payment is required in periodic amounts over an extended time period. Factored Receivables are receivables that have been sold to a third party for immediate cash, Honored Receivables are receivables for which payment has been received, Notes Receivable are receivables that are supported by formal promissory notes, and Credit Sales Receivable is not a commonly used term.

Question 16

Clayborn Company expects that $12,600 of its $420,000 Accounts Receivable balance is uncollectible. The Allowance for Doubtful Accounts before adjustment has a credit balance of $1,400. The amount of the adjusting entry needed by Clayborn is:

Accepted Answer

The adjusting entry is calculated as follows:
$12,600 (uncollectible amount) - $1,400 (credit balance in the allowance account) = $11,200.
Therefore, the correct answer is C) $11,200.

Question 17

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense.  All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Accepted Answer

The answer of The following selected amounts are reported on...

Question 18

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

The answer of Majesty Productions accepted a $7,200, 120-day, 6%...

Question 19

Driver Company expects that $17,500 of its $437,500 Accounts Receivable balance is uncollectible. The Allowance for Doubtful Accounts before adjustment has a debit balance of $2,400. The amount of the adjusting entry needed by Driver is:

Accepted Answer

The adjusting entry needed by Driver is to increase the Allowance for Doubtful Accounts by $17,500, which is the amount of uncollectible accounts receivable. The adjusting entry will be:Debit: Bad Debt Expense $17,500Credit: Allowance for Doubtful Accounts $17,500The new balance of the Allowance for Doubtful Accounts will be $17,500 + $2,400 = $19,900.

Question 20

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

The answer of Mullis Company sold merchandise on account to...

Quiz 7: Reporting and Analyzing Receivables