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Exam 7: Accounts and Notes Receivable

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Question 31

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A Company sold $10,000 of its accounts receivable and was charged a 2% factoring fee. How should the company record this transaction in the journal?

A) $\begin{array}{|l|r|r|}\hline \text { Cash } & 9,800 & \\\hline \text { Factoring Fee Expense } & 200 & \\\hline \text { Accounts Receivable } & & 10,000 \\\hline\end{array}$
B) $\begin{array} { | l | r | r | } \hline \text { Cash } & 10,000 & \\\hline \text { Accounts Receivable } & & 10,000 \\\hline\end{array}$
C) $\begin{array} { | l | r | r | } \hline \text { Cash } & 10,000 & \\\hline \text { Factoring Fee Expense } & & 200 \\\hline \text { Accounts Receivable } & & 9,800 \\\hline\end{array}$
D) $\begin{array} { | l | r | r | } \hline \text { Accounts Receivable } & 10,000 & \\\hline \text { Factoring Fee Expense } & & 200 \\\hline \text { Cash } & & 9,800 \\\hline\end{array}$
E) $\begin{array} { | l | r | r | } \hline \text { Accounts Receivable } & 9,800 & \\\hline \text { Factoring Fee Expense } & 200 & \\\hline \text { Cash } & & 10,000 \\\hline\end{array}$

F) A) and D)
G) C) and E)

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Question 32

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The following series of transactions occurred during 2011 and 2012 when Linwood Co. sold merchandise to John Moore. Linwood's annual accounting period ends on December 31.

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Prepare Linwood Co.'s journa...

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Question 33

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

The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in years.

A promissory note:

On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful Accounts, credit balance of $1,245. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?

Each December 31, Davis Company ages its accounts receivable to determine the amount of its adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts account had a debit balance of $3,200 before any year-end adjustment for bad debts. Prepare the adjusting journal entry that Davis Company should make on December 31, of the current year, to estimate bad debts expense.

The materiality principle 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.

The accounts receivable turnover is calculated by dividing net sales by average accounts receivable.

The accounts receivable turnover ratio indicates how often account receivables are received and collected during the period.

Temper Company has credit sales of $3.10 million for year 2010. Temper estimates that 2% of accounts receivable will remain uncollectible. Historically, .9% of sales have been uncollectible. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575. Temper prepares a schedule of its December 31, 2010, 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: 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?

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:

The maturity date of a note refers to the date the note is signed.

Prepare general journal entries for the following transactions of this company for the current year:

A ____________________ is a signed promise to pay a specified amount of money either on demand or at a definite future date.

What is the amount of interest that is due on a $36,000 3-month 4% note receivable?

When a company has a high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account.

MixRecording Studios purchased $7,800 in electronic components from TechCom. MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal entry to record the sales portion of the transaction is:

Chiller Company has credit sales of $5.60 million for year 2010. Chiller estimates that 1.32% of the credit sales will not be collected. Historically, 4% of outstanding accounts receivable is uncollectible. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $3,561. Chiller prepares a schedule of its December 31, 2010, 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: $\begin{array}{rlr}\text { December } 31,2010 & \text { Age of Accounts } & \text { Expected Percent } \\\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\\hline\$ 1,095,000 & \text { Not yet due } & 0.85 \% \\322,550 & 1 \text { to } 30 \text { days past due } & 1.42 \\84,700 & 31 \text { to } 60 \text { days past due } & 7.60 \\50,420 & 61 \text { to } 90 \text { days past due } & 42.50 \\12,500 & \text { Over } 90 \text { days past due } & 81.00\end{array}$ Assuming the company uses the aging of accounts receivable method, what is the amount that Chiller will enter as the Bad Debt Expense in the December 31 adjusting journal entry?