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Exam 8: Receivables,Bad Debt Expense,and Interest Revenue

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Question 81

Multiple Choice

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When a company lends cash to a customer who signs a promissory note:

A) total assets decrease when the lending transaction occurs,but increase when the amount borrowed by the customer is repaid.
B) total assets increase when the lending transaction occurs and revenues increase when the amount borrowed by the customer is repaid.
C) total assets increase and liabilities increase when the lending transaction occurs.
D) total assets and net income do not change when the lending transaction occurs.

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

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Question 82

Multiple Choice

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

A) Lower sales revenues exceed bad debt savings.
B) Wage cost savings exceed delayed receipt of cash.
C) Gross profits exceed bad debt costs.
D) The speed of cash receipts exceeds bad debt costs.

E) B) and C)
F) None of the above

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Question 83

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When a company routinely sells on credit,it is inevitable that some of its customers will not pay the amount owed.

On December 1,2018,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 1,2019,when the interest is paid at maturity?

On October 1,a company lends $10,000 to an employee who signs a 9%,6-month promissory note.The company is preparing its year-end financial statements on December 31.No adjusting entries have been recorded in connection with this note.What adjusting entry should be recorded before the financial statements are prepared?

Company A lends $100,000 to Company B.The interest on the loan is reported as:

The direct write-off method for uncollectible accounts is required:

Saint John Industries uses the percentage of credit sales method to estimate Bad Debt Expense.The company reported net credit sales of $500,000 during the year.Saint John has experienced bad debt losses of 3% of credit sales in prior periods.At the beginning of the year,Saint John has a credit balance in its Allowance for Doubtful Accounts of $4,000.No write-offs or recoveries were recorded during the year.What amount of Bad Debt Expense should Saint John recognize for the year?

On June 12,because management knew with near certainty that it had no chance of collection,Sheave Company wrote off a customer's account balance in the amount of $350.On November 3,the customer mailed a payment for $350 to Sheave.To record the receipt of this payment from the customer,the company would debit:

Creek Co.uses the percentage of credit sales method in determining its bad debt expense.The following information comes from the accounting records of Creek Co.: $\begin{array}{lr}\text { Cash sales } & 300,000 \\\text { Credit sales } & 1,200,000 \\\text { Total sales } & 1,500,000 \\\text { Credit balance in the Allowance for Doubtful Accounts } & 7,500 \\\text { Bad debt loss rate } & 3 \%\end{array}$ What is the estimate of bad debt expense?

The direct write-off method for uncollectible accounts:

Match the term and its definition.There are more definitions than terms. -Receivables Turnover

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance,the amount of receivables written off was ________ than the amount estimated in the prior period.Thus,bad debt expense will be ________ in the current period than had the unadjusted balance been a credit balance.

Credit card companies charge a fee to the seller that accepts the credit cards.This fee is recorded by the seller as a selling expense on its income statement.

Your company has previously averaged about 16% of its accounts receivable in the "over 90 days past due" category.This year management forecasts that 20% of its accounts receivable will be in this category at the end of the current year.The company uses the aging of accounts receivable method of estimating Bad Debt Expense.If the total of credit sales and year-end balance in accounts receivable remain unchanged from the previous year and no write offs were made during the current year,this year's bad expense will:

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

Inglewood Industries has net sales of $936,600 and average net receivables of $223,000 for the year.Which of the following statements is correct? (Round all calculations to one decimal place. )

Which of the following statements about extending credit is not correct?

What effect does the collection of a note receivable,excluding interest,have on the accounting equation?

Twilight Company uses the aging of accounts receivable method to estimate Bad Debt Expense.The balance of each account receivable is aged on the basis of three categories as follows: (1)1-30 days old,(2)31-90 days old,and (3)more than 90 days old.Based on experience,management has estimated what portion of receivables of a specific age will not be paid as follows: (1)1%,(2)15%,and (3)40%,respectively. At December 31,2019,the unadjusted credit balance in the Allowance for Doubtful Accounts was $80.The total Accounts Receivable in each age category were: (1)1-30 days old,$52,000,(2)31-90 days old,$8,000,and (3)more than 90 days old,$3,200. Required: Part a.Calculate the estimate of uncollectible accounts at December 31,2019. Part b.Prepare the appropriate adjusting entry dated December 31,2019.