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

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Question 21

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A customer of Exquisite Flooring recently filed for bankruptcy protection two months ago, leading the credit manager of Exquisite Flooring to conclude that the company would never collect the balance of $2,800 owed by the customer to our company. -Use the information above to answer the following question.Which of the following journal entries would be made by Exquisite Flooring to record the write-off of the customer's Accounts Receivable balance?

A) Debit Allowance for Doubtful Accounts and credit Accounts Receivable for $2,800
B) Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $2,800
C) Debit Bad Debt Expense and credit Accounts Receivable for $2,800
D) Debit Sales and credit Accounts Receivable for $2,800

E) A) and B)
F) A) and C)

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Question 22

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On July 1,2016,Empire Inc.lends $8,000 to a customer and receives a 9% note due in two years.Interest is due in full on July 1,2018,the due date of the note.What is the amount of Interest Revenue that will be reported on Empire's income statement for the year ended December 31,2016?

A) $1,440
B) $720
C) $420
D) $360

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

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Question 23

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Your company has net sales of $468,300 and average net receivables of $111,500 for the year.Which of the following statements is correct? (Round all calculations to one decimal place.)

On January 1,a company lends a customer $90,000 for one year at a 7% annual interest rate.The note requires the payment of interest twice each year on June 30 and December 31.An adjusting entry to accrue interest is recorded at the end of every month.On July 2,a check for the interest payment for January through June comes in the mail.What journal entry will the company record on July 2?

Wrangler Inc.uses the percentage of credit sales method to estimate Bad Debt Expense.At the end of the year,the company's unadjusted trial balance includes the following: Wrangler has experienced bad debt losses of 0.5% of credit sales in prior periods.What is the Bad Debt Expense to be recorded for the year?

The direct write-off method:

A high accounts receivable turnover ratio indicates:

Countryside Corporation's receivables turnover ratio decreased from 14.1 last year to 11.8 this year.Which of the following statements is correct?

In the interest formula,the interest rate is on a(n) _____ basis; therefore,the time variable must reflect how many _____ out of _____ in the interest period.

Interest revenue from notes receivable is typically reported on a multiple step income statement as a part of Income from Operations.

Match the term and its definition.There are more definitions than terms. Terms 1____ .Net Realizable Value 2____ .Percentage of Credit Sales Method 3____ .Allowance for Doubtful Accounts 4____ .Principal 5____ .Write-Off 6____ .Aging of Accounts Receivable 7____ .Credit Terms 8____ .Factoring Definitions A.How much money you can expect to earn over a period of time selling your goods. B.The length of the credit period and any discounts offered for prompt payment. C.A method of estimating uncollectible debts by forecasting the probability of not collecting late accounts. D.Selling accounts receivable to another company for immediate cash. E.The account in which the estimated amount of accounts receivable expected to be uncollectible is recorded. F.Also known as net accounts receivable. G.A method of estimating uncollectible debts by looking at the historical average of credit sales not collected. H.The amount of money lent. I.Credit that a company receives when one good is exchanged for another. J.The interest earned by money over a period of time. K.When a company increases the amount of accounts receivable by adding the interest earned as accounts age without being collected. L.The process of removing specific customers' accounts deemed uncollectible.

Carrington Company uses the allowance method for recording bad debts.On February 1,Carrington wrote off a $3,500 customer account balance when it became clear that the particular customer would never pay.On May 29,Carrington unexpectedly received a check for $3,500 from the customer.On May 29,Carrington will:

Blossom Inc.has an unadjusted debit balance of $3,500 in its Allowance for Doubtful Accounts.The company has experienced bad debt losses of 2% of credit sales in prior periods.Blossom reported net credit sales of $1,500,000 for the current period.The required journal entry to record Bad Debt Expense should include a debit to:

Mercy Inc.uses the Aging of Accounts Receivable method for estimating uncollectible accounts.The accounting records show the following information at the end of the year: If the unadjusted credit balance in the Allowance for Doubtful Accounts account before is $15,000,what would be the amount of the adjustment for bad debts?

The Perry Company reported Accounts Receivable,Net of $66,600 at the beginning of the year and $72,600 at the end of the year If the company's net sales revenue during the fourth year was $876,000,what are the days to collect during year? (Round all calculations to one decimal place.)

When credit card sales occur,the seller may receive cash immediately,or within a few days,depending upon the specific credit card program being used.

Plasma Inc.uses the percentage of credit sales method to estimate Bad Debt Expense.The company reported net credit sales of $500,000 during the year.Plasma has experienced bad debt losses of 2% of credit sales in prior periods.At the beginning of the year,Plasma 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 Plasma recognize for the year?

The receivables turnover ratio gives information on how:

The allowance method for uncollectible accounts is used for accounts receivable,but not for notes receivable.

Santiago Cleaners allows customers make purchases using their VISA credit cards.If customers purchase from Santiago using VISA credit cards,which of the following statements is correct?