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Exam 7: Accounting for Receivables

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Question 31

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Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected.

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Question 32

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Which of the following is not a significant difference between the allowance method and the direct write-off method?

A) One method requires writing off uncollectible accounts and the other does not.
B) One method conforms to GAAP and the other typically does not.
C) One method reports net realizable value on the balance sheet and the other does not.
D) One method requires the estimation of uncollectible accounts and the other does not.

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Question 33

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On December 31, Year 1, the West Corporation estimated that $6,000 of its receivables might not be collected. At the end of Year 1, the unadjusted balances of Accounts Receivable and Allowance for Doubtful Accounts were $150,000 and zero. On February 1, Year 2, West wrote-off a delinquent account from one of its customers. West Corporation uses the allowance method. Indicate whether each of the following statements is true or false. a)The net realizable value of accounts receivable (after the appropriate adjustment at the end of Year 1)was $144,000.b)The write-off of the account on February 1 Year 2 did not affect the net realizable value of West's accounts receivable.c)The adjustment to record uncollectible account expense at the end of Year 2 had no effect on West's total assets.d)The February 1 write-off had no effect on West's Year 2 total assets.e)The February 1 write-off decreased Year 2 net income.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Garrison Company recognized $4,000 of service revenue earned on account.

On January 1, Year 1, the Accounts Receivable balance was $31,300 and the balance in the Allowance for Doubtful Accounts was $3,800. On January 15, Year 1, an $1,120 uncollectible account was written-off. What is the net realizable value of accounts receivable immediately after the write-off?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA On September 1, Year 1, Ruiz Company loaned $10,000 to Alpha Company. Show the effect of the December 31, Year 1 adjustment to accrue interest on Ruiz's financial statements.

Which of the following is (are) the term(s) used to describe the person responsible for making payment on the due date of a promissory note?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Powell Company collected cash from accounts receivable.

How is the accounts receivable turnover ratio computed?

The net realizable value of accounts receivable decreases when an account receivable is written off.

One of the methods for recognizing uncollectible accounts is the direct write-off method. Indicate whether each of the following statements is true or false. a)The direct write-off method is not permitted by GAAP if uncollectible accounts expense is immaterial.b)The direct write-off method is allowed for some companies because of the going concern concept.c)The direct write-off method requires an advance estimate of anticipated uncollectible accounts.d)The direct write-off method is easier to use than the allowance method.e)The direct write-off method does not require the use of an allowance account.

When an uncollectible account receivable is written off under the allowance method, the amount of total assets is unchanged.

Indicate whether each of the following statements is true or false. a)The higher the accounts receivable turnover ratio, the longer is a company's cash collection period.b)The accounts receivable turnover ratio is measured as the amount of sales divided by net accounts receivable.c)The average days to collect accounts receivable is measured as 365 divided by the accounts receivable turnover ratio.d)Longer collection periods decrease the costs of collecting from customers.e)A higher average collection period is desirable.

Blain Company has $20,000 of accounts receivable that are current, $10,000 that are between 0 and 30 days past due, $6,000 that are between 30 and 60 days past due, and $1,600 that are more than 60 days past due. Blain estimates that 2% of the receivables that are current will be uncollectible, 5% of those between 0 and 30 days past due will be uncollectible, 10% of those between 30 and 60 days past due will be uncollectible, and 50% of those more than 60 days past due will be uncollectible. At the beginning of Year 1, Blain had a $2,000 positive balance in its allowance for doubtful accounts. During Year 1, Blain wrote-off $2,200 of uncollectible receivables. Assuming Blain uses the aging method to estimate uncollectible accounts expense, the amount of uncollectible expense will be

Which of the following is a cost of extending credit to customers?

Domino Company ages its accounts receivable to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During Year 2, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's estimate of uncollectible accounts expense for Year 2, Domino prepared the following aging schedule: What amount will be reported as uncollectible accounts expense on the Year 2 income statement?

Larsen Company began the current year with balances in accounts receivable and allowance for doubtful accounts of $45,700 and $1,280, respectively. The company reported credit sales of $475,250 during the year, collected $480,200, and wrote off $800 of uncollectible accounts. Larsen Company estimates that 12% of its accounts receivable balance will be uncollectible.Required:Determine the balance in the allowance for doubtful accounts as of the end of the current year.Compute Larsen Company's uncollectible accounts expense for the current year.Determine Larsen's net realizable value of accounts receivable as of the end of the current year.

Which of the following businesses would most likely have the longest operating cycle?

When the direct write-off method is used, what is the effect on the accounting equation of writing off an uncollectible account receivable?

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following correctly states the effect of recording the collection of the reestablished receivable on April 4, Year 2?