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Exam 8: Receivables

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Question 71

True/False

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The direct write-off method records bad debt expense when an account is determined to be uncollectible.

A) True
B) False

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Question 72

Multiple Choice

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On August 1, Kim Company accepted a 90-day note receivable as payment for services provided to Hsu Company. The terms of the note were $20,000 face value and 6% interest. On October 30, the journal entry to record the collection of the note should include a

A) credit to Notes Receivable for $20,300
B) debit to Interest Receivable for $300
C) credit to Interest Revenue for $300
D) debit to Notes Receivable for $20,000

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

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Question 73

Multiple Choice

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When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method

The equation for computing interest on an interest-bearing note is as follows: Interest = Maturity Value × Interest Rate × Time.

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000. What is the net realizable value of the accounts receivable?

Journalize the following transactions for Lucite Company. November 14 Received a $4,800.00, 90-day, 9% note from Alan Albertson in payment of his account. December 31 Accrued interest on the Albertson note. February 12 Received the amount due from Albertson on his note. $\begin{array} { | c | c | c | c | c | } \hline \text { Date } & \text { Description } & \begin{array} { c } \text { Post. } \\\text { Ref. }\end{array} & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

Roe's Renovations utilizes the direct write-off method of accounting for uncollectible receivables. On September 15 the company is notified by the attorneys for Jacob Marley that Jacob Marley is bankrupt and no cash is expected in the liquidation. Write off the $675 of accounts receivable due from Jacob Marley.

When using the percent of sales method of estimating uncollectibles, the entry to record bad debt expense includes a credit to Accounts Receivable.

Allowance for Doubtful Accounts has a credit balance of $2,100 at the end of the year (before adjustment) , and an analysis of customers' accounts indicates uncollectible receivables of $19,700. Which of the following entries records the proper adjustment for bad debt expense?

Two methods of accounting for uncollectible accounts are the

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include a

An aging of a company's accounts receivable indicates the estimate of uncollectible receivables totals $7,900. If Allowance for Doubtful Accounts has a $700 credit balance, the adjustment to record the bad debt expense for the period will require a

The number of days' sales in receivables

If a promissory note is dishonored, the payee should still record interest revenue.

The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivable are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:

Sunshine Service Center received a 120-day, 6% note for $40,000, dated April 12 from a customer on account. (a) Determine the due date of the note. (b) Determine the maturity value of the note. (c) Journalize the entry to record the receipt of the payment of the note at maturity.

For the fiscal years 1 and 2, Grange Co. reported the following: ​ (a) Compute the accounts receivable turnover for Year 2. Round to two decimals. (b) Compute the number of days' sales in receivables at the end of Year 2. Round to two decimals.

Discuss the two methods for recording bad debt expense. What type of company uses each method?