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Exam 7: Accounting for Receivables

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Question 71

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Indicate whether each of the following statements is true or false. _____ a) Loaning cash to another company is considered a financing activity on the statement of cash flows. _____ b) The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest. _____ c) In a promissory note, the payee issues the note to the maker. _____ d) Interest rates are always stated on an annual basis, regardless of the length of the note. _____ e) Accruing interest on a note receivable is considered an asset source transaction.

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a) False b) True c) False d) True e) Tru...

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Question 72

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Ahmed Company accepts a credit card as payment for $950 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Ahmed's financial statements.

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 73

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Jobin Company ended 2012 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $46,000 and $1,800, respectively. During 2013, Jobin wrote off $3,000 of Uncollectible Accounts. After aging its receivables, Jobin estimates that the ending Allowance for Doubtful Accounts balance should be $3,200. What will Jobin report as Uncollectible Accounts Expense on its 2013 income statement?

Indicate whether each of the following statements is true or false. _____ a) Most companies do not expect to receive the full face value of their receivables. _____ b) The estimated amount of uncollectible accounts is called the net realizable value. _____ c) The direct write-off method of accounting for uncollectible accounts requires the computation of the net realizable value of accounts receivable. _____ d) The practice of reporting the net realizable value of receivables is commonly called the allowance method of accounting for uncollectible accounts. _____ e) The materiality principle requires the computation of net realizable value for a company's liabilities.

Which of the following answers correctly shows the effect of the December 31, 2012 adjusting entry for uncollectible accounts on the financial statements of the Lindley Corporation?

Which of the following correctly shows the effects of the sale on July 7? Assume that the credit card fee is recorded on the date of sale.

Anne's Antiques Shop reported the following income statement and balance sheet for 2013: a) Determine the inventory turnover and the average number of days to sell its inventory. b) Determine the accounts receivable turnover and the average number of days it takes to collect accounts receivable. c) Determine the estimated number of days in the operating cycle.

Discuss briefly the costs of making sales on account.

Most companies report receivables on their balance sheets at the net realizable value.

The face value of Accounts Receivable less the balance in the Allowance for Doubtful Accounts is equal to the net realizable value of the receivables.

Indicate whether each of the following statements is true or false. _____ a) A benefit of making credit card sales is that there is no cost to the merchant. _____ b) A benefit of accepting credit cards is that increased sales may be generated. _____ c) Recording a credit card sale increases total assets and increases total equity. _____ d) Recording the collection of cash from the credit card company increases cash and increases revenue. _____ e) The income statement is not affected at the time the cash receipt is recorded.

If a company estimates uncollectible accounts based on a percentage of receivables, the resulting estimate will show up on the balance sheet as the ending balance in Allowance for Doubtful Accounts.

The longer it takes to collect accounts receivable, the greater the opportunity cost incurred.

Which of the following is not considered a "cost" of financing credit sales?

The following information is available for Pho Corporation, which uses the allowance method of accounting for uncollectible accounts. Pho expects 3% of sales on account to be uncollectible. Required: a) What is the uncollectible account expense for 2013? b) Prepare the journal entry to record uncollectible accounts expense for 2013. c) In 2014, after several attempts of collection, Pho wrote off accounts that could not be collected of $350. Prepare the journal entry to record the write-off of the $350. d) Later in 2014, Pho received a check for $70 from one of the customers whose account had been written off in c), above. Prepare the required journal entries to record the collection of the $70.

On September 1, 2013, Ruiz Company loaned $10,000 to Alpha Company. Show the effect of this transaction on Ruiz's financial statements.

Which of the following answers correctly states the effect of the February 2013 entry to write off the customer's account?

The percent of receivables method to estimate uncollectible accounts expense is also known as:

Karma's entry required to recognize the uncollectible accounts expense for 2013 will

Einstein Company accepted credit card payments for $20,000 of services provided to customers. The credit card company charges a 3% service charge. This transaction would