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Exam 7: Cash and Receivables

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Question 21

Multiple Choice

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Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting accounts receivable and debiting:

A) Sales.
B) Sales discounts.
C) Sales returns.
D) Sales allowances.

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

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Question 22

Multiple Choice

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Important elements of an internal control system for cash disbursements include each of the following except:

A) Only authorized personnel should sign checks.
B) All expenditures should be authorized before a check is prepared.
C) All disbursements, other than very small disbursements, should be made by check.
D) The same person that prepares the check should also record it the proper journal.

E) C) and D)
F) All of the above

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Question 23

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On March 12, 2009, Admiral Electronics sold 20 fax machines to Cool Stuff Co. for $10,000, subject to terms 2/10, n30. Admiral uses the gross method of accounting for sales discounts. Required: 1. Prepare the journal entry to record the sale. 2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on March 20, 2009. 3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on April 5, 2009.

Rahal's 2009 bad debt expense is:

False Value's 2009 income statement would report net sales of:

Securitization of receivables is a type of secured borrowing.

Rahal's adjusted allowance for uncollectible accounts at December 31, 2009, is:

If HP is using the balance sheet approach to determining bad debt expense, what percentage of year-end receivables did it use in 2007 and 2006, respectively?

Which of the following is considered a sale of receivables:

Define what it is meant by internal control.

Priscilla's Exotic Pets discounted a note receivable without recourse and the sales criteria were met. The discounting is recorded as:

In deciding whether financing with receivables is a secured borrowing or a sale, the critical element is the extent to which:

Unless specific sales criteria are met, the factoring of accounts receivable with recourse is accounted for as a loan.

At January 1, 2009, Farley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Farley's credit sales have been uncollectible. During 2009, Farley wrote off $650,000 of accounts receivable. Credit sales for 2009 were $18,000,000. In its December 31, 2009 balance sheet, what amount should Farley report as allowance for uncollectible accounts?

When you use an aging schedule approach for estimating uncollectible accounts:

Cash is the most liquid of all assets but is not always reported under current assets. Explain this statement.

Although the net method is theoretically more sound, most companies use the gross method of accounting for cash discounts related to sales on account. Explain this statement.

On October 18, 2009, Flying Chicken sold 2,000 pounds of chicken to Healthier Grocery for $3,400, subject to terms 2/10, n30. Flying Chicken uses the gross method of accounting for sales discounts. Required: 1. Prepare the journal entry to record the sale. 2. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on October 26, 2009. 3. Prepare the journal entry to record receipt of the payment, assuming the correct amount was received on November 15, 2009.

Briefly explain why the direct write-off of uncollectible accounts is not permitted by GAAP if bad debts are material.

Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2009, Chez Fred's credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivables on January 1, 2009, if $180 in accounts receivable were written off during 2009 and if the allowance account had a balance of $750 on 12/31/09?