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Exam 5: Receivables and Sales

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Question 21

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If the direct write-off method is used to account for uncollectible accounts, which of the following statements is false?

A) An allowance account is not used.
B) No adjustment is made at the end of the year to estimate future uncollectible accounts.
C) Accounts receivable will be reported at its net realizable value.
D) Bad debt expense is recorded at the time an actual bad debt is written-off.

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Question 22

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On July 1, 2012, a company loans one of its employees $20,000 and accepts a nine-month, 8% note receivable. Calculate the amount of interest revenue the company will recognize in 2012 and 2013.

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2012: $20,000 8% ...

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Question 23

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Suppose Casey Title Company normally charges $500 for services related to selling a house. As part of a summer special, Casey offers customer's a trade discount of 20%. On July 9, Linda Holmes uses the services of Casey and pays cash equal to the discounted price. Record the revenue earned by Casey on July 9.

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 23, assuming the customer made the correct payment on that date?

Under the direct write-off method, what adjustment is made at the end of the year to account for possible future bad debts?

Under the direct write-off method, what adjustment is made at the time an actual bad debt occurs?

At the end of the year, a company reports a balance in its Allowance for Uncollectible Accounts of $1,400 (credit) before any year-end adjustment. The company estimates future uncollectible accounts to be 3% of credit sales for the year. Credit sales for the year total $280,000. Record the adjustment for the allowance for uncollectible accounts using the percentage-of-credit-sales method.

Bad debt expense is the amount of the adjustment to the allowance for uncollectible accounts that represents the cost of the estimated future bad debts.

The adjustment for uncollectible accounts involves a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.

Notes receivable typically arise from sales to customers.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Considers that the longer past due the account receivable is, the less likely it is to be collected.

At the time of a credit sale, a company would record an increase in assets and an increase in revenues.

The percentage-of-credit-sales method for estimating uncollectible accounts is commonly referred to as the income statement method, because it always results in a higher amount of net income being reported in the income statement.

On February 23, a company provides services on account to a customer for $4,500. The customer pays in full for those services on March 4. Record the transactions for the company when the services are provided on February 23 and when the cash is collected on March 4.

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:

The direct write-off method involves recording an adjustment at the end of each period to account for the possibility of future uncollectible accounts.

Sales returns and allowances occur when the buyer returns the goods or the seller reduces the customer's balance owed.

On January 1, 2012, Alice & Co. lends $5,000 to an employee and accepts a 24-month, 10% note. At the end of 2012, what effect will the adjustment for accrued interest revenue have on the Alice & Co.'s financial statements?

The Allowance for Uncollectible Accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.

McConnell's Bakeries had the following balances on December 31, 2012, before any adjustment: Accounts Receivable = $100,000; Allowance for Uncollectible Accounts = $4,100 (credit) . McConnell's estimates uncollectible accounts based on an aging of accounts receivable as shown below: $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Age Group } \\\text { (days past due) }\end{array} & \begin{array} { c } \text { Accounts } \\\text { Receivable }\end{array} & \begin{array} { c } \text { Estimated Percent } \\\text { Uncollectible }\end{array} \\\hline \text { Not yet due } & \$ 50,000 & 4 \% \\\hline 0 - 30 & \$ 20,000 & 8 \% \\\hline 31 - 60 & \$ 18,000 & 10 \% \\\hline \text { More than } 60 & \$ 12,000 & 40 \% \\\hline\end{array}$ What amount of bad debt expense did McConnell's record in its December 31, 2012, adjustment to the allowance account?