Chapter 9: Receivables Flashcards
Receivables are frequently classified as:
(a) accounts receivable, company receivables, and
other receivables.
(b) accounts receivable, notes receivable, and employee
receivables.
(c) accounts receivable and general receivables.
(d) accounts receivable, notes receivable, and other
receivables.
(d) Receivables are frequently classified as accounts receivable, notes receivable, and other receivables.
Buehler Company on June 15 sells merchandise on
account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received?
(a) $700.
(b) $680.
(c) $686.
(d) None of the above.
(c) Because payment is received within 10 days of the purchase, the cash received is $686 = [$1,000 - $300] - [($1,000 - $300) * 2%)].
Which of the following approaches for bad debts is
best described as a balance sheet method?
(a) Percentage-of-receivables basis.
(b) Direct write-off method.
(c) Percentage-of-sales basis.
(d) Both percentage-of-receivables basis and direct write-off method.
(a) The percentage-of-receivables basis is a balance sheet method because it emphasizes the cash (net) realizable value of accounts receivable.
Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjust- ments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:
(a) $5,000.
(b) $55,000.
(c) $60,000.
(d) $65,000.
(b) By crediting Allowance for Doubtful Accounts for $55,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $55,000 and credits Allowance for Doubtful Accounts for $55,000.
Use the same information as in Question 4, except
that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is:
(a) $5,000.
(b) $55,000.
(c) $60,000.
(d) $65,000.
(d) By crediting Allowance for Doubtful Accounts for $65,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $65,000 and credits Allowance for Doubtful Accounts for $65,000
Net sales for the month are $800,000, and bad debts
are expected to be 1.5% of net sales. The company uses the percentage-of-sales basis. If Allowance for Doubtful Accounts has a credit balance of $15,000 before adjustment, what is the balance after adjustment?
(a) $15,000.
(b) $27,000.
(c) $23,000.
(d) $31,000
(b) Net sales times the percentage expected to default equals the amount of bad debt expense for the year ($800,000 * 1.5% = $12,000). Because this adjusting entry credits Allowance for Doubtful Accounts, the balance after adjustment is $27,000 ($15,000 + $12,000)
In 2017, Roso Carlson Company had net credit sales
of $750,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2017, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2017?
(a) $10,050.
(b) $10,500.
(c) $22,500.
(d) $40,500.
(b) The accounts written off during the year will result in a $30,000 debit to Allowance for Doubtful Accounts. The adjusting entry for bad debts will include a $22,500 credit ($750,000 * 3%) to Allowance for Doubtful Accounts. Combining the beginning balance of $18,000 credit, the $30,000 debit, and the $22,500 credit leaves a credit balance of $10,500 in the allowance account.
An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data. Accounts receivable: $800,000 Allowance for doubtful accounts per books before adjustment: $50,000 Amounts expected to become uncollectible: $65,000
The cash realizable value of the accounts receivable at December 31, after adjustment, is:
(a) $685,000.
(b) $750,000.
(c) $800,000.
(d) $735,000.
(d) Accounts Receivable less the expected uncollectible amount equals the cash realizable value of $735,000 ($800,000 - $65,000).
Which of the following statements about Visa credit card sales is INcorrect?
(a) The credit card issuer makes the credit investiga-
tion of the customer.
(b) The retailer is not involved in the collection process.
(c) Two parties are involved.
(d) The retailer receives cash more quickly than it
would from individual customers on account.
(c) There are three parties, not two, involved in Visa credit card sales: the credit card company, the retailer, and the customer.
Blinka Retailers accepted $50,000 of Citibank Visa
credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Blinka Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to:
(a) Cash ($48,000) and Service Charge Expense ($2,000).
(b) Accounts Receivable ($48,000) and Service Charge Expense ($2,000).
(c) Cash ($50,000).
(d) Accounts Receivable ($50,000).
(a) Credit card sales are considered cash sales. Cash is debited $48,000 for the net amount received ($50,000 - $2,000 for credit card use fee), and Service Charge Expense is debited $2,000 for the 4% credit card use fee ($50,000 * 4%)
One of the following statements about promissory notes is incorrect. The incorrect statement is:
(a) The party making the promise to pay is called the
maker.
(b) The party to whom payment is to be made is
called the payee.
(c) A promissory note is not a negotiable instrument.
(d) A promissory note is often required from high-risk customers.
(c) A promissory note is a negotiable instrument.
Accounts and notes receivable are reported in the cur- rent assets section of the balance sheet at:
(a) cash (net) realizable value. (b) net book value.
(c) lower-of-cost-or-net realizable value.
(d) invoice cost.
(a) Accounts Receivable is reported in the current assets section of the balance sheet at the gross amount less the allowance for doubtful accounts.
Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in accounts receivable at the beginning of the year was $100,000, and the end of the year it was $150,000. What were the accounts receivable turnover and the average collection period in days?
(a) 4.0 and 91.3 days.
(b) 5.3 and 68.9 days.
(c) 6.4 and 57 days.
(d) 8.0 and 45.6 days.
(c) The accounts receivable turnover is 6.4 [$800,000 / ($100,000 + $150,000) / 2)]. The average collection period in days is 57 days (365 / 6.4).
