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Exam 7: Accounting for Receivables

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Question 71

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Jasper makes a $25,000,90-day,7% cash loan to Clayborn Co.Jasper's entry to record the transaction should be:

A) Debit Notes Receivable for $25,000; credit Cash $25,000.
B) Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.
C) Debit Cash $25,000; credit Notes Receivable for $25,000.
D) Debit Notes Payable $25,000; credit Accounts Payable $25,000.
E) Debit Notes Receivable $25,000; credit Sales $25,000.

F) C) and D)
G) A) and B)

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Question 72

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Match each of the following terms with the appropriate definitions. -Selling all or a portion of accounts receivable to a finance company or bank.

A) Factoring accounts receivable
B) Allowance method
C) Accounts receivable turnover
D) Principal of a note
E) Materiality constraint
F) Installment accounts receivable
G) Pledging accounts receivable
H) Direct write-off method
I) Dishonoring a note
J) Full disclosure principle

K) A) and D)
L) B) and D)

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Question 73

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A note that the maker is unable or refuses to pay at maturity is called a dishonored note.

A company received a $15,000,90-day,10% note receivable.The journal entry to record receipt of the note includes a debit to Notes Receivable.

The percent of sales method for estimating bad debts uses only income statement account balances to estimate bad debts.

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

The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not yet matured in the Notes Receivable account.

Prudence Co.receives a $26,000,90-day,4% note receivable.What is maturity value of the note?

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

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.

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.

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year: $\begin{array} { l l l } &\text { Debit } & \text { Credit } \\\text { Cash sales } & & \$ 188,000\\\text { Credit sales } & & 275,000 \\\text { Accounts receivable } & \$ 76,000 &\\\text { Allowance for doubtful accounts } & &1,000 \\\end{array}$ Prepare the adjusting entry to estimate bad debts assuming an aging analysis estimates that 8% of the outstanding accounts receivable will be uncollectible.

The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

Match each of the following terms with the appropriate definitions. -Amounts owed by customers from credit sales for which payment is required in periodic payments over an extended period of time.

A company had total sales of $600,000,net sales of $550,000,and an average accounts receivable of $90,000.Its accounts receivable turnover equals:

Sellers allow customers to use credit cards for all of the following reasons except:

On July 31,Orwell Co.has $448,800 of accounts receivable. Required: 1.Prepare journal entries to record the following selected August transactions.The company uses the perpetual inventory system. 2.Also prepare any footnotes to the August 31 financial statements that result from these transactions. 3.Calculate the balance in the Accounts Receivable account as of August 10. security for the loan.The note is a 90-day,9% note.

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?

Mullis Company sold merchandise on account to a customer for $625,terms n/30.The journal entry to record this sale transaction would be:

Match each of the following terms with the appropriate definitions. -The accounting constraint that states that an amount can be ignored if its effect on the financial statements is unimportant to its users.