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Exam 8: Reporting and Analyzing Receivables

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Question 91

Multiple Choice

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The interest on a $6,000, 6%, 90-day note receivable is

A) $360.
B) $180
C) $90.
D) $270.

E) None of the above
F) A) and B)

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Question 92

Multiple Choice

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An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a

A) debit to Bad Debt Expense for $4,500.
B) debit to Bad Debt Expense for $6,100.
C) debit to Bad Debt Expense for $2,900.
D) credit to Allowance for Doubtful Accounts for $4,500.

E) C) and D)
F) All of the above

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Question 93

Multiple Choice

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When a company receives an interest-bearing note receivable, it will

Two Brothers, a small book publishing company, wrote off the debt of The Learning Place, and the Academy of Basic Education, both small private schools, after it determined that the schools were facing serious financial difficulty. No notice of the action was sent to the schools; Two Brothers simply stopped sending bills. Nearly a year later, The Learning Place was given a large endowment and a government grant. The resulting publicity brought the school to the attention of Two Brothers, which immediately reinstated the account, and sent a new bill to the school, including interest for the entire time the debt was outstanding. No further action was taken regarding the Academy of Basic Education, which was still operational. Required: Did Two Brothers act ethically in reinstating the debt of one client, and not the other? Explain.

A dishonored note is a note that is not paid in full at maturity.

Trent Distributors has the following transactions related to notes receivable during the last two months of the year. Dec. 1 Loaned $16,000 cash to E. Kinder on a 1-year, 6% note. 16 Sold goods to J. Jones, receiving a $4,800, 60-day, 7% note. 31 Accrued interest revenue on all notes receivable. Instructions Journalize the transactions for Trent Distributors.

A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company.

Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.

The December 31, 2013, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2014, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Instructions (a) Journalize the 2014 transactions. (b) If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the adjusting entry at December 31, 2014?

The account Allowance for Doubtful Accounts is classified as a(n)

Compute the missing amount for each of the following notes:

Which of the following is not true regarding a promissory note?

Which receivables accounting and reporting issue is essentially the same for IFRS and GAAP?

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.

Compute the maturity value as indicated for each of the following notes receivable. 1. A $9,000, 6%, 3-month note dated July 20. Maturity value $____________. 2. A $16,000, 9%, 150-day note dated August 5. Maturity value $____________.

The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Revenue.

The ledger of the Ramirez Company at the end of the current year shows Accounts Receivable of $200,000. Instructions (a) If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.) (b) If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.)

Nance Co. holds Gant Inc.'s $25,000, 120 day, 9% note. The entry made by Nance Co. when the note is collected, assuming no interest has previously been accrued is:

Strickman Company uses the allowance method for estimating uncollectible accounts. Prepare journal entries to record the following transactions: