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Exam 7: Accounts and Notes Receivable

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Question 1

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A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following: Required: a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet b. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was $44,000 and that accounts receivable written off during the current year totaled $49,200 c. Prepare the adjusting journal entry to record bad debts expense on December 31 of the current year d. Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31

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Question 2

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The person to whom a note is payable to is known as the ______________.

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ABC Co. sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring fee. Prepare the journal entry for ABC Co. to record the sale.

The following information is from the annual financial statements of Duke Company. $\begin{array}{lrrr}&2011&2010&2009\\\text { Net Sales } & \$ 385,000 & \$ 308,000 & \$ 255,000 \\\text { Accounts Receivable, net (year-end) } & 57,500 & 54,000 & 44,700\end{array}$ Calculate the accounts receivable turnover ratio for 2010 and 2011.

A 90-day note issued on April 20 has a maturity date of:

The advantage of the allowance method of accounting for uncollectible accounts is that it identifies the specific customers who do not pay their bills.

During a given year, a company had net sales of $500,000 and average accounts receivable of $80,000. Its accounts receivable turnover is equal to 6.25.

Converting receivables to cash before they are due is usually done by either (1) _______________________ or (2)________________________________.

A company factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $35,000, a debit to Factoring Fee Expense of $700 and credit to Accounts Receivable of $35,700.

The matching principle requires:

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

A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date.

Companies can report a credit card expense as a discount deducted from sales or as a selling expense.

Explain the options a company has when converting its receivables to cash.

The amount of bad debt expense can be estimated by:

A company reports the following results in its financial statements: $\begin{array} { | l | r | r | r | } \hline & \text { Year 3 } & \text { Year } 2 & \text { Year 1 } \\\hline \text { Net sales } & \$ 2,500,000 & \$ 2,050,000 & \$ 1,900,000 \\\hline \text { Accounts receivable, Ending Balance } & 175,000 & 167,000 & 165,000 \\\hline\end{array}$ 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.

Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

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

The following information is from the annual financial statements of Nancy Company. $\begin{array}{lrrr}&2010&2009&2008\\\text { Net Sales } & \$ 307,000 & \$ 238,000 & \$ 285,000 \\\text { Accounts Receivable, net (year-end) } & 47,900 & 45,700 & 42,400\end{array}$ What is the accounts receivable turnover ratio for 2010?

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