F3 M2 Trade Receivables

Question 1

A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on ____.

Answer 1

Aging the receivables

Question 2

What do you add and subtract from Allowance for uncollectible accounts 1/1/Y1 to get to estimated uncollectible accounts per gaining 12/31/Y1?
Beginning balance
Add
Subtotal
Less
Ending balance

Answer 2

Beginning balance
Add: Provision for uncollectible accounts for year
Subtotal
Less: Uncollectible A&R written off
Ending balance

Question 3

Consignment goods are considered ____ not accounts receivable.

Answer 3

Inventory

Question 4

Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account:
A. increases the allowance for uncollectible accounts
B. Has no effect on net income
C. Decreases net income
D. Has no effect on the allowance for uncollectible accounts

Answer 4

B

Dr Allowance for uncollectible accts
Cr. Accounts receivable

Question 5

“Factoring receivables without recourse” causes the risk of uncollectible accounts to ____.

Answer 5

Transfer to the buyer

Question 6

Using the direct write-off method to account for uncollectible accounts receivable: cash collections from customers would equal sales adjusted by (adding/deducting) account receivables written off and (adding/deducting) the increase in the accounts receivable balance.

Answer 6

Deducting

Deducting

Question 7

When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a (an):
A. Account previously written off becomes collectible
B. Provision for uncollectible accounts is recorded
C. Account previously written off is collected
D. Specific uncollectible account is written off

Answer 7

D

Question 8

What happens to AR when part of AR is converted to notes receivable?

Answer 8

AR is lowered, Notes receivable is increased

Question 9

Gearty Company sells $100,000 worth of goods to Smith Company. The terms of the sale are 2/10, n/30. Prepare the journal entries for the accounts receivable under the gross method.
First entry: Record the date of the sale
Second entry: What if the payment is received within the discount period?
Third entry: What if the payment is not received within the discount period?

Answer 9

Dr: AR $100,000
Cr: Sales $100,000

Dr: Cash $98,000
Dr: Sales discounts taken $2,000
Cr: AR $100,000

Dr: Cash $100,000
Cr: AR $100,000

Question 10

Gearty Company sells $100,000 worth of goods to Smith Company. The terms of the sale are 2/10, n/30. Prepare the journal entries for the accounts receivable under the net method.
First entry: Record the date of the sale
Second entry: What if the payment is received within the discount period?
Third entry: What if the payment is not received within the discount period?

Answer 10

Dr: AR $98,000
Cr: Sales $98,000

Dr: Cash $98,000
Cr: AR $98,000

Dr: Cash $100,000
Cr: AR $98,000
Cr: Sales discounts not taken

Question 11

What kind of account is sales discounts taken?

What kind of account is sales discounts not taken?

Answer 11

Contra-revenue

Revenue

Question 12

Trade discounts are applied ____. Do not add the discounts together.

Answer 12

Sequentially, apply one at a time

Question 13

____ oral promises to pay a debt, _____ written promises to pay a debt.

Answer 13

Accounts receivable

Notes receivable

Question 14

Maturity value = _____ + ____

Answer 14

Present value + interest

Question 15

Face value minus the unearned interest equals

Answer 15

Present value

Question 16

What is the journal entry for discounting a notes receivable with recourse?

Answer 16

Dr Cash

Cr: Notes receivable discounted

Question 17

Notes receivable discounted is what kind of account?

Answer 17

Contra-asset

Question 18

When discounting notes receivable without recourse where does the risk of loss go?

Answer 18

Onto the buyer

Question 19

What is the journal entry for discounting a notes receivable without recourses?

Answer 19

Dr Cash loss

Cr Notes receivable

Question 20

What is the journal entry for writing off accounts receivable (or a portion of accounts receivable)?

Answer 20

Dr Allowance

Cr Accounts Receivable

Question 21

Writing off accounts receivable (does/does not) affect the income statement and balance sheet.

Answer 21

Does not

Question 22

Bad debt expense follows the ____ principle which would require the provision made throughout this year.

Answer 22

Matching principle

Question 23

What is the journal entry for receiving a collection on a receivable that was previously written off using the direct write off method (not GAAP)?

Answer 23

Dr Cash

Cr Uncollectible accounts recovered (revenue account)

Question 24

What is the journal entry for receiving a collection on a receivable that was previously written off using the allowance method (GAAP)?

Answer 24

Restore the AR:
Dr AR
Cr Allowance

Record the cash collection
Dr Cash
Cr AR

Question 25

What does your current year provision do to your allowance account?
What does write offs do to your allowance account?

Answer 25

Increase

Decrease

Question 26

___ is the process whereby the company uses existing AR as collateral for a loan. No Journal Entry. Requires a note disclosure only. AR is not adjusted.

Answer 26

Pledging

Question 27

___ is the process by which a company can convert its receivables into cash by assigning them to a factor either without or with recourse.

Answer 27

Factoring

Question 28

Factoring without recourse is consider a true ___. Decrease AR. The assignee assumes the ____.

Answer 28

Sale

Risk of loss

Question 29

Which method of recording uncollectible accounts expense is consistent with accrual accounting?
Allowance
Direct write off
Both
Neither

Answer 29

Allowance