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Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

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Question 91

Multiple Choice

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Failing to record bad debt expense in the same period as the related revenue violates which principle?

A) Expense recognition principle ("matching")
B) Revenue recognition principle
C) Lower-of-cost-or-market value principle
D) Cost principle

E) B) and D)
F) B) and C)

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Question 92

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Cairo Co.uses the allowance method of accounting for uncollectible accounts.Cairo Co.accepted a $5,000,12%,3-month note dated May 16,from Alexandria Co.in exchange for its past-due account receivable. Required: Part a.Prepare the journal entry for the receipt of the note on May 16. Part b.Prepare the journal entries for (1)the receipt of interest and (2)the receipt of the principal balance at maturity on August 14. Part c.Assume that Alexandria made the interest payment but not the principal payment on August 14.On November 30,Cairo writes off the note when it becomes clear that Alexandria will never pay.Prepare the journal entry to write-off the note receivable.

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Question 93

Multiple Choice

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Why is the direct write-off method not allowed under GAAP to account for doubtful accounts?

On March 1,Preston Corporation loans $3,000 to an employee and receives a 5%,three-month note.Interest will be paid when the note matures on May 31.Assuming that interest on the note has not previously been accrued,what entry will Preston make on April 30?

The direct write-off method for uncollectible accounts:

On December 1,2015,a company converted an existing account receivable in the amount of $6,000 to a note receivable to allow an extended payment period.The note is due in three months and includes an annual interest rate of 9%,The company prepares year-end financial statements on December 31 and recorded adjusting entries at that time.What entry should the company make on March 1,2016,when the interest is paid at maturity?

Best,Inc.loaned $100,000 for three months on November 1 to one of its customers at the rate of 6%.The principal amount of the loan plus interest is due on the following February 1.The related adjusting entry was recorded on December 31.What is the amount of interest revenue that should be included in the entry dated February 1?

Removing an uncollectible account and its corresponding allowance from the accounting records is called:

There are advantages and disadvantages to extending credit to customers.Which of the following statements below expresses the general reason for extending credit?

The allowance method for uncollectible accounts conforms to the expense recognition principle.

Delectable,Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000,a credit balance in its Allowance for Doubtful Accounts of $50,and Sales Revenue of $100,000.Based on an aging of its receivable,management estimates that $1,000 of receivables will be uncollectible.Delectable's financial statements will show:

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

The Allowance for Doubtful Accounts account is a contra-account that offsets:

If the receivables turnover ratio rises significantly,the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

For billing and collection purposes,a company will internally keep a separate accounts receivable account for each customer called a:

Because it is easier to use,the direct write-off method for uncollectible accounts is typically used instead of the allowance method.

The Treadwell Tire Company had net accounts receivable of $67,900 at the beginning of the year and $72,400 at the end of the year.If the company's net sales revenue during the year was $876,875,what is the receivables turnover ratio?

Under the allowance method for uncollectible accounts,the write-off of a specific account will not affect total assets.

The following information is available: The days to collect for 2016 is closest to:

Cary Inc.reported net credit sales of $300,000 for the current year.The unadjusted credit balance in its Allowance for Doubtful Accounts is $500.The company has experienced bad debt losses of 1% of credit sales in prior periods.Using the percentage of credit sales method,what amount should the company record as an estimate of Bad Debt Expense?