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Exam 9: Accounting for Receivables

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Question 71

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Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB) , which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

A) Debit Accounts Receivable $3,500; credit Sales $3,500
B) Debit Cash $3,500; credit Sales $3,500
C) Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500
D) Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
E) Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500

F) B) and E)
G) C) and E)

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Question 72

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After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

A) True
B) False

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Question 73

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When a note receivable is dishonored, it reverts to an account receivable.

A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method.

Match each of the following terms with the appropriate definitions. A. Allowance method B. Installment accounts receivable C. Principal of a note D. Full disclosure principle E. Materiality constraint F. Direct write-off method G. Dishonoring a note H. Accounts receivable turnover I. Factoring accounts receivable J. Pledging accounts receivable _____ 1. A measure of both the quality and liquidity of accounts receivable that indicates how often, on average, receivables are received and collected during the period. _____ 2. Amounts owed by customers from credit sales for which payment is required in periodic payments over an extended period of time. _____ 3. The accounting constraint that states that an amount can be ignored if its effect on the financial statements is unimportant to its users. _____ 4. Refers to a note maker's inability or refusal to pay a note at maturity. _____ 5. A method of accounting for bad debts that matches the estimated loss from uncollectible accounts receivable against the sales they helped to produce. _____ 6. Selling all or a portion of accounts receivable to a finance company or bank. _____ 7. The accounting principle that requires financial statements (including the notes) to report all relevant information about operations and financial condition. _____ 8. Committing accounts receivable as security for a loan. _____ 9. A method of accounting for bad debts that records the loss from an uncollectible account receivable immediately upon determining it is uncollectible. _____ 10. The amount that the signer of a note agrees to pay back when the note matures, not including interest.

Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

The allowance method of accounting for bad debts requires an estimate of bad debt expense at the end of each accounting period. The two common methods to determine the estimate amount are the percent of sales method and the percent of receivables method. Explain the basic differences between the two methods.

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

A maker who dishonors a note is one who does not pay it at maturity.

Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. -Music World's journal entry to record the sales transaction is:

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. - What entry should Uniform Supply make on December 31, to record the accrued interest on the note?

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. -What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.) (Use 360 days a year.)

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

When posting a dishonored note to a customer's account, an explanation is included so as not to misinterpret the debit as a sale on account.

BizCom's customer, Redding, paid off an $8,300 balance on its account receivable. BizCom should record the transaction as a debit to Accounts Receivable-Redding and a credit to Cash.

The person to whom a note is payable is known as the __________.