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Exam 7: Accounting for Receivables

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Question 1

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A company that uses the direct write-off method of accounting for uncollectible accounts must still prepare a year-end adjusting entry to estimate its uncollectibles.

A) True
B) False

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Question 2

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The net realizable value of accounts receivable decreases when an account receivable is written off.

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B) False

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Question 3

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Use the following to answer questions On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050. -Assume that the Loudoun Corporation uses the direct write-off method of accounting for uncollectible accounts.Which of the following answers correctly describes the effect of the write-off of the customer's account on Lindley's financial statements?

The adjusting entry to recognize uncollectible accounts expense is an asset use transaction.

The collection of an account receivable is an asset source transaction.

Indicate whether each of the following statements is true or false. _____ a)The higher the accounts receivable turnover ratio,the longer is a company's cash collection period. _____ b)The accounts receivable turnover ratio is measured as the amount of sales divided by accounts receivable. _____ c)The average days to collect accounts receivable is measured as 365 divided by the accounts receivable turnover ratio. _____ d)The higher the average days to collect accounts receivable,the greater is the amount of cash collection. _____ e)The higher the average days to collect accounts receivable,the faster is the cash inflow from accounts receivable.

Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected.

On January 1,2016,Burton Company had a balance in Accounts Receivable of $90,000 and a balance in the Allowance for Doubtful Accounts account of $2,400.During 2016 Burton had credit sales of $244,000 and ended the year with a balance in Accounts Receivable of $48,000.During 2016 Burton also wrote off $1,100 of receivables.Burton uses the allowance method for uncollectible accounts and assumes that 2% of the sales on account will not be collected. a)After adjusting entries on 12/31/16,what will be the balance in the Allowance for Doubtful Accounts? b)By what amount did net realizable value of accounts receivable decrease in 2016 due to the write-off of the receivable? c)What amount of cash was collected from customers during 2016?

The amount of accounts receivable that is actually expected to be collected is known as:

Which of the following is not considered a "cost" of financing credit sales?

What financial statement ratios facilitate the measurement of a company's effectiveness in collecting cash from customers?

After the accounts are adjusted at the end of the year,Accounts Receivable has a balance of $225,000,Uncollectible Accounts Expense for the year was $17,500,and Allowance for Doubtful Accounts has a balance of $12,500.What is the net realizable value of the accounts receivable?

Indicate whether each of the following statements is true or false. _____ a)Loaning cash to another company is considered a financing activity on the statement of cash flows. _____ b)The major difference between treating the extension of credit to a customer as accounts receivable and treating it as notes receivable is the existence of interest. _____ c)In a promissory note,the payee issues the note to the maker. _____ d)Interest rates are always stated on an annual basis,regardless of the length of the note. _____ e)Accruing interest on a note receivable is considered an asset use transaction.

The following information is taken from the adjusted trial balance of the Studio Art Supply Company on 12/31/16: Studio Art Supply offers all of its charge customers the credit terms,2/10,n/30. Required: a)Compute the accounts receivable turnover. b)Compute the average number of days to collect accounts receivable.Round your answer to a whole number for days. c)Comment on the meaning of these ratios and specifically on how well this firm is managing its accounts receivable.

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Enter only one letter for each element.You do not need to enter amounts. -On December 31,2016,Sparkes Co.estimated it had $12,000 of uncollectible accounts related to credit sales it made during the year.Sparkes,which uses the allowance method,made the proper adjusting entry on this date.Indicate the effects of the adjusting entry.

If a company estimates uncollectible accounts based on a percentage of receivables,the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.

The following information is available for Phoenix Corporation,which uses the allowance method of accounting for uncollectible accounts.Phoenix expects 3% of sales on account to be uncollectible. Required: a)Calculate the amount of uncollectible accounts expense for 2016. b)Prepare the journal entry to record uncollectible accounts expense for 2016. c)In 2017,after several attempts of collection,Phoenix wrote off accounts that could not be collected of $700.Prepare the journal entry to record the write-off of the $700. d)Later in 2017,Phoenix received a check for $140 from one of the customers whose account had been written off in c),above.Prepare the required journal entries to record the collection of the $140.

Indicate whether each of the following statements is true or false. _____ a)A benefit of making credit card sales is that there is no cost to the merchant. _____ b)A benefit of accepting credit cards is that increased sales may be generated. _____ c)Recording a credit card sale increases total assets and increases total liabilities. _____ d)Recording the collection of cash from the credit card company increases cash and increases revenue. _____ e)The income statement is not affected at the time the cash receipt is recorded.

Collection of a credit card receivable is an asset source transaction.

What type of transaction is the write-off of an uncollectible account using the allowance method? (asset source,asset use,asset exchange,or claims exchange)