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Exam 7: Accounting for Receivables

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Question 1

Multiple Choice

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A promissory note:

A) Is a short-term investment for the maker.
B) Is a written promise to pay a specified amount of money at a certain date.
C) Is a liability to the payee.
D) Is another name for an installment receivable.
E) Cannot be used in payment of an account receivable.

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B

Question 2

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A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is:

A) $900
B) $75
C) $450
D) $300
E) $1,800

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Question 3

Multiple Choice

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A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: $\begin{array} { | l | r | } \hline \text { Accounts receivable } & \$ 375,000 \text { debit } \\\hline \text { Allowance for uncollecible accounts } & 500 \text { debit } \\\hline \text { Net Sales } & 800,000 \text { credit } \\\hline\end{array}$ All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Flax had net sales of $7,875 and its average accounts receivables is $1,250. Calculate Flax's accounts receivable turnover:

Explain the difference between honoring and dishonoring a note receivable.

The maturity date of a note receivable:

After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

BizCom's customer, Redding, paid off an $8,300 balance on its account receivable. BizCom should record the transaction as a debit to Accounts Receivable-Redding and a credit to Cash.

A maker who dishonors a note is one who does not pay it at maturity.

A note that the maker is unable or refuses to pay at maturity is called a dishonored note.

On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer settle an account. What entry should be made on the November 1 to record the note acceptance?

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be:

The person that borrows money and signs a promissory note is called the maker.

The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the higher the likelihood of collection.

The interest accrued on $7,500 at 6% for 90 days is:

Which of the following is not true about the Allowance for Doubtful Accounts?

A receivable is an amount due from another party.

If a credit card sale is made, the seller can either debit Cash or debit Accounts Receivable at the time of the sale, depending on the type of credit card.

A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account, less a 2.5% service charge. Assume that on April 13, the company sold $20,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.