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Exam 7: Accounting for Receivables

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Question 41

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Assume that this company's bad debts are estimated and recorded as 1.5% of credit sales. On December 31, of the current year, a company's unadjusted trial balance revealed the following: accounts receivable of $185,600; sales revenue of $1,280,000; (75% were on credit) and allowance for doubtful accounts of $1,600 (credit balance). a. Show how accounts receivable and the allowance for doubtful accounts would appear on the balance sheet after adjustment. b. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year. c. Show how accounts receivable and the allowance for doubtful accounts would appear on the balance sheet immediately after writing off the account in part 2.

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Question 42

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Corona Company has credit sales of $4.60 million for year 2014. The company estimates that 2% of sales will be uncollectible. On December 31, 2014, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,164. Corona prepares a schedule of its December 31, 2014, accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here: $\begin{array}{ccc}\text { December } 31,2014 & \text { Age of Accounts } & \text { Expected Percent } \\\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\\hline\$ 720,000 & \text { Not yet due } & 1.05 \% \\252,000 & 1 \text { to } 30 \text { days past due } & 1.80 \\49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \\14,100 & 61 \text { to } 90 \text { days past due } & 31.75 \\2,850 & \text { Over } 90 \text { days past due } & 66.00\end{array}$ Assuming the company used the percent of sales method determine the amount that should be recorded for bad debt expense on December 31, 2014.

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Question 43

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The materiality constraint permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in comparison to the company's other financial statement items such as sales and net income.

A company had an accounts receivable turnover ratio of 12 and net sales of $744,000 for a given period. What was the average amount of accounts receivables for this period?

On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

The interest accrued on $3,600 at 7% for 60 days is:

A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account. The company also is charged a 2.5% service charge for these credit card sales. Assume that on April 13, the company sold $25,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

How are the direct write-off method and the allowance method applied in accounting for uncollectible accounts receivables?

Prepare general journal entries for the following transactions of this company for the current year: Dec. 13 Accepted a $8,000, 60-day, 9% note dated December 13 in granting Faith Renee a time extension on her past-due account receivable. 31 Prepared an adjusting entry to record the accrued interest on the Renee note.

A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: $\begin{array}{|l|r|}\hline \text { Accounts receivable } & \$ 245,000 \text { debit } \\\hline \text { Allowance for uncollectible accounts } & 300 \text { credit } \\\hline \text { Net Sales } & 900,000 \text { credit } \\\hline\end{array}$ All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Writing off an uncollectible account receivable when the allowance method of accounting for uncollectible accounts is used, a company should debit _______________________ and credit accounts receivable.

A company reports the following results in its financial statements: $\begin{array}{|l|c|c|c|}\hline & \text { Year 3 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Net sales } & \$ 2,500,000 & \$ 2,050,000 & \$ 1,900,000 \\\hline \text { Accounts receivable, ending balance } & 175,000 & 167,000 & 165,000 \\\hline\end{array}$ Calculate this company's accounts receivable turnover for year 2 and year 3. Compare these two results and give a possible explanation for any significant change.

When the maker of a note is unable or refuses to pay at maturity, the note is said to be ___________________.

Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its accounts receivable turnover is:

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

On May 31, a company had a balance in its accounts receivable of $103,895. Record the company's following transactions for June: $\begin{array}{|l|l|}\hline \text { June 2 } & \text { Sold merchandise on account, } \$ 14,000 . \\\hline \text { June 8 } & \begin{array}{l}\text { Sold } \$ 15,000 \text { worth of accounts receivable to First Bank. First Bank charged a } \\3 \% \text { factoring fee. }\end{array} \\\hline \text { June 20 } & \begin{array}{l}\text { Borrowed } \$ 30,000 \text { cash from First Bank, pledging } \$ 31,500 \text { worth of accounts } \\\text { receivable as collateral for the loan. }\end{array} \\\hline\end{array}$

Temper Company has credit sales of $3.10 million for year 2013. Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible. Historically, .9% of sales have been uncollectible. On December 31, 2013, the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575. Temper prepared a schedule of its December 31, 2013, accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here: $\begin{array}{ccc}\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \\\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\\$ 620,000 & \text { Not yet due } & 1.05 \% \\248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \\49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \\24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \\4,960 & \text { Over } 90 \text { days past due } & 66.00\end{array}$ Assuming the company uses the percent of accounts receivable method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Explain the basic differences between estimating the amount of uncollectible accounts using the percent of sales method and the accounts receivable method.

A supplementary record created to maintain a separate account for each customer is called the ________________________.

After adjustment, the allowance for doubtful accounts has the effect of reducing accounts receivable to its estimated realizable value.