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Exam 7: Accounting for Receivables

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Question 41

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Buttercup Florist uses the allowance method to account for uncollectible accounts.Unable to collect a $150 account from a customer,Buttercup determined it was uncollectible.How would the write-off of this account affect the elements of the company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

E) None of the above
F) All of the above

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Question 42

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Which of the following is the term commonly used to describe the practice of reporting the net realizable value of receivables in the financial statements?

A) Cash flow method.
B) Allowance method.
C) Direct write-off method.
D) Accrual method.

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

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Question 43

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Collecting a credit card receivable is an asset source transaction.

[The following information applies to the questions displayed below.] On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. -Which of the following correctly states the effect of recording the collection of the reestablished receivable on April 4,Year 2?

Domino Company ages its accounts receivable to estimate uncollectible accounts expense.Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800,respectively.During Year 2,the company wrote off $4,640 in uncollectible accounts.In preparation for the company's estimate of uncollectible accounts expense for Year 2,Domino prepared the following aging schedule: What amount will be reported as uncollectible accounts expense on the Year 2 income statement?

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

[The following information applies to the questions displayed below.] On January 1, Year 2 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. -What is the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows?

[The following information applies to the questions displayed below.] On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. -Which of the following correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4,Year 2?

Which accounting concept can be used by some companies to justify the use of the direct write-off method?

How is a company's operating cycle determined?

When a company receives payment from a customer whose account was previously written off,the account is reinstated and the net realizable value of Accounts Receivable increases.

What does the accounts receivable turnover ratio measure?

Which of the following is a cost of extending credit to customers?

Which of the following best describes the percent of receivables method?

How is the average number of days to collect accounts receivable computed?

Which of the following is not an advantage of accepting credit cards from retail customers?

Indicate whether each of the following statements is true or false assuming use of the allowance method.

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900,respectively.During Year 2,Allegheny wrote off $1,500 of Uncollectible Accounts.Using the percent of receivables method,Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600.What amount will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

If a company uses the percent of receivables method to estimate uncollectible accounts,the company will first determine the required ending balance in Allowance for Doubtful Accounts; the Uncollectible Accounts Expense will be the difference between that amount and the balance in the Allowance for Doubtful Accounts.

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1,Year 1.The one-year note carried a 6% rate of interest.What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2,respectively?