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Exam 8: Receivables

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Question 21

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The number of days' sales in receivables is an estimate of the length of time the accounts receivable have been outstanding.

A) True
B) False

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Question 22

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The following information was taken from the books of Olmeck, Inc. ​ (a) Determine the accounts receivable turnover for Year 1 and Year 2. ​ (b) Determine the number of days' sales in receivables for Year 1 and Year 2. ​ (c) The industry average for the accounts receivable turnover is 8.0. How does Olmeck, Inc. compare? ​

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(a) Year 1: $956,000 ÷ [($120,500 + $110...

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Question 23

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When companies sell their receivables to other companies, the transaction is called factoring.

Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.

In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the amount of the adjustment when applying which method?

A debit balance in the Allowance for Doubtful Accounts

When a company receives an interest-bearing note receivable, it will

Journalize the following transactions in the accounts of Simmons Company: ​ Mar. 1 Received a $60,000, 60-day, 6% note dated March 1 from Bynum Company on account. Mar. 18 Received a $25,000, 60-day, 9% note dated March 18 from Solo Company on account. Apr. 30 The note dated March 1 from Bynum Company is dishonored, and the customer's account is charged for the note, including interest. May 17 The note dated March 18 from Solo Company is dishonored, and the customer's account is charged for the note, including interest. July 29 Cash is received for the amount due on the dishonored note dated March 1 plus interest for 90 days at 8% on the total amount debited to Bynum Company on April 30. Aug. 23 Wrote off against the allowance account the amount charged to Solo Company on May 17 for the dishonored note dated March 18.

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles ​

On June 30 (the end of the period), Brown Company has a credit balance of $2,275 in Allowance for Doubtful Accounts. An evaluation of accounts receivable indicates that the proper balance should be $30,025. Journalize the appropriate adjusting entry.

Interest on a note can be calculated without knowledge of the

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $2,000. The Accounts Receivable balance is analyzed by aging the accounts and, the amount estimated to be uncollectible is $15,000. The amount to be recorded in the adjusting entry for the bad debt expense is $15,000.

The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.

Lone Star Company received a 90-day, 6% note for $80,000, dated March 12 from a customer on account. (Assume a 360-day year when calculating interest.) (a) Determine the due date of the note. (b) Determine the maturity value of the note. (c) Journalize the entry to record the receipt of the payment of the note at maturity.

Based on the following data and using a 365-day year, compute (a) the accounts receivable turnover and (b) the number of days' sales in receivables for year 2 to 2 decimal places. The industry average turnover is 20 times during the year, and the number of days' sales in receivables averages 25. (c) Comment on this situation. $\begin{array}{lr}12 / 31 / \text { Year } 1 \text { accounts receivable } & 100,000 \\12 / 31 / \text { Year } 2 \text { accounts receivable } & 70,000 \\\text { For the year ended } 12 / 31 / \text { Year } 1 \text {, sales } & 1,050,000 \\\text { For the year ended } 12 / 31 / \text { Year } 2 \text {, sales } & 1,200,000\end{array}$

Notes or accounts receivable that result from sales transactions are often called

The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off since the beginning of the year.

When referring to a note receivable or promissory note

You have just received notice that a customer of yours with an Account Receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to ​

Mr. Potts issued a 90-day, 7% note for $200,000, dated February 3 to Valley Co. on account. (Assume a 360-day year when calculating interest.) (a) Determine the due date of the note. (b) Determine the interest. (c) Determine the maturity value of the note. (d) Journalize the entry to record the receipt of the note from Potts on Feb. 3. (e) Journalize the entry to record the receipt of payment of the note at maturity by Valley Co.