Question 1

The following information was taken from the records of Alphabet Soup at the end of Year 1:
 $\begin{array}{lr}
\text { Cash sales } & \$ 1,000,000 \
\text { Credit sales } & 500,000 \
\text { Sales discounts } & 5,000 \
\text { Accounts receivable } & 250,000 \
\text { Allowance for doubtful accounts (before adjustment) } & (25,000) \
\text { Estimated uncollected accounts } & 2,475 \
\text { Cost of goods sold } & \$ 975,000
\end{array}$ 
Determine the following:
A)gross sales
B)net sales
C)gross profit
Assuming the company uses the income statement approach to estimating uncollectibles:
D)bad debt estimate percentage
E)year-end adjusting entry to record bad debt expense
F)ending balance in allowance for doubtful accounts after adjustment
G)net realizable value of receivables after adjustment for bad debts
Assuming the company uses the balance sheet approach to estimating uncollectibles:
H)gross receivables
I)ending balance in allowance for doubtful accounts after adjustment
J)net realizable value of receivables after adjustment for bad debts

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Question 2

Affinity Services Group received a 12%,six-month promissory note with a principal amount of $10,000 from a customer for the sale of merchandise on December 1,Year 1.
 A) How much interest revenue will the company recognize as of December 31 , Year 1 ?
B) How much interest revenue will the company recognize in Year 2?
C) Determine the total amount of cash the company will collect on the date of the note's maturity.

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Question 3

The following information is available for All-4-U Company for the year ending December 31,Year 2:
 $$\begin{array} { l r l l } 
\text { Net sales } & \$ 5,000,000 & \text { Accounts receivable -December 31. Year 1 } & \$ 1,250,000 \
\text { Cost af goods sold } & \$ 3,500,000 & \text { Accounts receivable -December 31. Year } 2 & \$ 1,000,000 \
\text { Operating income } & \$ 600,000 & & \
\text { Net income } & \$ 400,000 & &
\end{array}$$ 
 A) Compute the gross profit ratio for Year 2.
B) Compute the operating margin ratio for Year 2.
C) Year 2
D) Compute the accounts receivable turnover for Year 2

Accepted Answer

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Question 4

On June 3,2012,Alpine Corporation sold merchandise with a gross price of $45,000 with terms of 2/10,n/30.
Prepare the journal entries for the following:
 A) Record the sale using the gross method.
B) Assume the payment is received on June 10, Year 1.
C) Assume payment is not received until June 21, Year 1

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Question 5

This company sells its merchandise only on credit. The following data are available at December 31, Year 1.
 $\begin{array}{lr}
\text { Sales } & \$ 411,000 \
\text { Sales returns and allowances } & 12,000 \
\text { Accounts receivable at January 1, Year 1 } & 89,000 \
\text { Allowance for doubtful accounts at January 1, Year 1 } & 4,100 \
\text { Cash collections during Year 1 } & 385,100 \
\text { Accounts written off as uncollected during Year 1 } & 3,600
\end{array}$ 
-Refer to Abundant Returns.Assume that the company estimates bad debts using the aging method.The aging schedule indicates that $11,500 of the end of the year accounts receivable will be uncollected.
 A) What andunt will the compary recognize as bad debt expense for the year?

B) If the ending balance of accounts receivables is \$65,200, what is the net realizable value of accounts receivable reported on December 31, Year 1?

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Question 6

Identify two methods of accelerating cash from sales.

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Question 7

The following comparative financial statements for the years ended December 31,Year 2 and Year 1 are provided for Air Plus Company:
 $\begin{array} { l r r } 
\text { Balance Sheet: } & \text { Year 2 } & \text { Year 1 } \
\quad \text { Cash and cash equivalents } & \$ 87,000 & \$ 71,600 \
\text { Accounts receivables, less allowance for doubtful } & & \
\quad \text { accounts of \$90 (Year 2) and \$82 (Year 1) } & 3,800 & 2,500 \
\text { Notes receivable } & 15,000 & 20,000 \
& & \
\text { Income Statement: }  \ 
\quad \text { Net sales for the year } & \$ 9,700 & \$ 8,800 \
\text { Net income for the year } & 920 & 1,050
\end{array}$

Answer these questions concerning the company's receivables:
 A)	What is the gross amount of accounts receivable at December 31, Year 2? Why is this amount different from the amount of receivables shown in the Year 2 column of the balance sheet?
	
B)	What is the net realizable value of accounts receivable at December 31, Year 2? What does this amount represent?
	
C)	How should accounts receivable be classified on a classified balance sheet? Why?

Accepted Answer

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Question 8

This company sells merchandise only on credit. For the year ended December 31, Year 1, the following data are available:
 $\begin{array}{lr}
\text { Sales } & \$ 1,200,000 \
\text { Sales returns and allowances } & 50,000 \
\text { Accounts receivable — January 1, Year 1 } & 225,000 \
\text { Allowance for doubtful accounts —January 1, Year 1 } & 15,000 \
\text { Collections during Year 1 } & 1,050,000 \
\text { Accounts written off as uncollected during Year 1 } & 10,000
\end{array}$
-Refer to Aardvark Resale.Can the company use the direct write-off method rather than the allowance method to account for bad debts expense? Explain why or why not.

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Question 9

This company sells merchandise only on credit. For the year ended December 31, Year 1, the following data are available:
 $\begin{array}{lr}
\text { Sales } & \$ 1,200,000 \
\text { Sales returns and allowances } & 50,000 \
\text { Accounts receivable — January 1, Year 1 } & 225,000 \
\text { Allowance for doubtful accounts —January 1, Year 1 } & 15,000 \
\text { Collections during Year 1 } & 1,050,000 \
\text { Accounts written off as uncollected during Year 1 } & 10,000
\end{array}$
-Refer to Aardvark Resale.Since the company has a choice of acceptable methods to estimate bad debts,what factors should be considered in the selection?

Accepted Answer

The answer of This company sells merchandise only on credit....

Question 10

This company sells its merchandise only on credit. The following data are available at December 31, Year 1.
 $\begin{array}{lr}
\text { Sales } & \$ 411,000 \
\text { Sales returns and allowances } & 12,000 \
\text { Accounts receivable at January 1, Year 1 } & 89,000 \
\text { Allowance for doubtful accounts at January 1, Year 1 } & 4,100 \
\text { Cash collections during Year 1 } & 385,100 \
\text { Accounts written off as uncollected during Year 1 } & 3,600
\end{array}$ 
-Refer to Abundant Returns.Determine the balance of accounts receivable at December 31,Year 1.

Accepted Answer

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Question 11

On January 1,Year 1,Alliance Company had the following balances for accounts receivable and allowance for doubtful accounts:
 $\begin{array}{ll}
\text { Accounts Receivable } & \$ 750,000 \text { (debit) } \
\text { Allowance for Doubtful Accounts } &50,000 \text { (credit) }
\end{array}$ 
During Year,1 the company made $3,200,000 in credit sales,collected $3,000,000 of accounts receivable and wrote off $20,000 of accounts receivable as uncollected.
Required:
 A) What is the company's preadjustment balance in accounts receivable on December 31 , Year 1 ?
B) What is the preadjustment balance in allowance for doubtful accounts on December 31 , Year 1?
C) Assume an analysis of aging of accounts receivable indicates that $ \$ 45,000 $ of the current accounts receivable balance is uncollected. By what amount will the allowance for doubtful accounts need to be adjusted?
Prepare the adjusting entry for Year 1 for allowance for doubtful accounts.

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Question 12

What are the criteria the IFRS uses to determine if revenue is realized or realizable and earned?

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Question 13

This company sells its merchandise only on credit. The following data are available at December 31, Year 1.
 $\begin{array}{lr}
\text { Sales } & \$ 411,000 \
\text { Sales returns and allowances } & 12,000 \
\text { Accounts receivable at January 1, Year 1 } & 89,000 \
\text { Allowance for doubtful accounts at January 1, Year 1 } & 4,100 \
\text { Cash collections during Year 1 } & 385,100 \
\text { Accounts written off as uncollected during Year 1 } & 3,600
\end{array}$ 
-Refer to Abundant Returns.The firm estimates that bad debts could be 2% of net sales.
 A) What amount will the company recognize as bad debts expense for the year?

B) Assume that the company has a balance of accounts receivable of $\$ 108,900$, and on allowance for doubtful accounts of $\$ 820$. What will be the net realizable value once the adjustment from (Part $A$ ) is made?

Accepted Answer

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Question 14

All American Storage Corporation sold merchandise with credit terms of 2/10,n/30,for $100,000 to a customer on January 01,Year 1.Nine months later,on October 1,Year 1,the company accepted a 12%,six-month note receivable in settlement of the account.The customer paid the maturity value of the note on the due date.
Prepare the following journal entries:
 A) Record the sale of merchandise on January 1 , Year 1.
B) Record the receipt of the note receivable on October 1, Year 1.
C) Record the adjusting entry to accrue interest on December 31, Year 1.
D) What is the due date of the note?
E) Record the collection of the note on the due date.

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Question 15

What is the purpose of an aging schedule for accounts receivable?

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Question 16

On November 1,Year 1,Aero Graphics sold merchandise to a customer and received a 10%,90-day promissory note with a principal amount of $60,000.
 A) Identify the maturity date of the note.
B) How much total interest revenue will the company earn over the term of the note?
C) By how much will net income be understated if the company fails to make a year-end adjusting entry for the note?

Accepted Answer

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Question 17

On May 1, Year 1, the company sold merchandise to a customer and received an 8%, six-month note with a principal amount of $100,000. The company's year end is December 31.
-Refer to Accutemp Heating & Air.Identify the maturity date of the note.

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Question 18

Airport Support Company reported its accounts receivable turnover ratio at 10 times.Its credit terms are 2/10,n/20.What does this ratio tell you about this company?

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Question 19

On May 1, Year 1, the company sold merchandise to a customer and received an 8%, six-month note with a principal amount of $100,000. The company's year end is December 31.
-Refer to Accutemp Heating & Air.How much total interest revenue will the company recognize over the term of the note?

Accepted Answer

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Question 20

Alpha Company's accounts receivable and allowance for doubtful accounts balances were $100,000 and $14,000 (credit)respectively,at the beginning of Year 2.During Year 2,a customer defaults on a $12,000 balance related to goods purchased during Year 1.By the end of the year,the company had made credit sales of $2,400,000 and collected $2,200,000 on account.It now estimates that 1% of its credit sales will default.
 A) Prepare the journal entry to write-off the bad debt.
B) Prepare the adjusting entry to record bad debt expense for Year 1.
C) What is the net accounts receivable balance at the end of the year?

Accepted Answer

The answer of Alpha Company's accounts receivable and allowance for...

Quiz 5: Revenue and Receivables

Identify two methods of accelerating cash from sales.

What are the criteria the IFRS uses to determine if revenue is realized or realizable and earned?

What is the purpose of an aging schedule for accounts receivable?

On May 1, Year 1, the company sold merchandise to a customer and received an 8%, six-month note with a principal amount of $100,000. The company's year end is December 31. -Refer to Accutemp Heating & Air.Identify the maturity date of the note.

Airport Support Company reported its accounts receivable turnover ratio at 10 times.Its credit terms are 2/10,n/20.What does this ratio tell you about this company?

On May 1, Year 1, the company sold merchandise to a customer and received an 8%, six-month note with a principal amount of $100,000. The company's year end is December 31. -Refer to Accutemp Heating & Air.How much total interest revenue will the company recognize over the term of the note?