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Exam 5: Receivables and Sales

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Question 61

True/False

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If a company is owed $10,000 by its customers,but it expects that $1,000 will not be collected,accounts receivable in the balance sheet are reported at the net amount of $9,000.

A) True
B) False

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Question 62

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At the end of the year,Mark Inc.estimates future bad debts to be $6,500.The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment.What adjustment should Mark Inc.record for the estimated bad debts at the end of the year?

A) Debit Bad Debt Expense,$6,500;credit Allowance for Uncollectible Accounts,$6,500.
B) Debit Bad Debt Expense,$4,000;credit Allowance for Uncollectible Accounts $4,000.
C) Debit Allowance for Uncollectible Accounts,$9,000;credit Bad Debt Expense,$9,000.

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

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Question 63

Multiple Choice

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A note receivable is reported in the balance sheet:

On October 1,2018,Stripes Inc.lends $100,000 to another company and accepts a 24-month,6% note.What is the amount of interest revenue Stripes will report in its 2019 income statement?

Bad debt expense is the amount of the adjustment to the allowance for uncollectible accounts that represents the cost of the estimated future bad debts.

The percentage-of-credit-sales method (income statement method)is allowed only if amounts do not differ significantly from estimates using the percentage-of-receivables method.

On January 1,2018,Alice & Co.lends $5,000 to an employee and accepts a 24-month,10% note.At the end of 2018,what effect will the adjustment for accrued interest revenue have on the Alice & Co.'s financial statements?

The direct write-off method is an acceptable method for what purpose?

On October 1,2018,Stripes Inc.lends $100,000 to another company and accepts a 24-month,6% note.What is the amount of interest revenue Stripes will report in its 2018 income statement?

The distinction between the direct write-off method and the allowance method is:

At December 31,Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments.An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected.The balance of Allowance for Uncollectible Accounts after adjustment will be:

At December 31,Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (credit) before any adjustments.An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected.The balance of Allowance for Uncollectible Accounts after adjustment will be:

When using an aging method for estimating uncollectible accounts:

The following information pertains to Lightning Inc. ,at the end of December: Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,10% of receivables less than 30 days past due,and 40% of receivables greater than 30 days past due.The accounts receivable balance of $7,000 consists of $3,500 not yet due,$2,000 less than 30 days past due,and $1,500 greater than 30 days past due.What is the appropriate amount of Bad Debt Expense? $\begin{array} { | l | r | l | } \hline \text { Credit Sales } & \$ 60,000 & \\\hline \text { Accounts Payable } & 10,000 & \\\hline \text { Accounts Receivable } & 7,000 & \\\hline \begin{array} { l } \text { Allowance for Uncollectible } \\\text { Accounts }\end{array} & \$ 400 & \text { credit } \\\hline \text { Cash Sales } & 20,000 & \\\hline\end{array}$

Red Company has the following information: Net credit sales = $400,000 Net income = $100,000 Average total assets = $80,000 Average accounts receivable = $20,000 What is Red's average collection period (rounded to the nearest whole day) ?

Identify the likely advantage(s) of extending credit to customers.

Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?

The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes described as:

A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts may have been too high.

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?