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

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Question 61

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Companies A and B both report net income growth of 12% per year.Company A has a receivables turnover ratio of 5.6,which is lower last year.Company B has a receivables turnover ratio of 11.3,which is higher than last year.All other things being equal:

A) Company A is more effectively managing its receivables.
B) Company B is more effectively managing its receivables.
C) Company A's days to collect is lower than Company B's in both years.
D) Company B's days to collect increased.

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

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Question 62

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Countryside Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.In conformity with the expense recognition principle,the company should:

A) record an estimate of Bad Debt Expense in the same period as the lawn care is provided.
B) not report the sales revenue until it collects payment.
C) increase the value of its liabilities with an adjustment.
D) wait until the accounts are determined to be uncollectible before making an entry to record the related Bad Debt Expense.

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

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Question 63

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Using the aging approach,management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible.The Allowance for Doubtful Accounts has a $100 unadjusted credit balance.After the bad debt adjusting entry is recorded,Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

An objective of the expense recognition principle ("matching") is to have bad debt expense debited in:

Using its aging of accounts receivable,Age Old,Inc.estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible.Prior to making its adjusting entry,the unadjusted Allowance for Doubtful Accounts has a debit balance of $1,000.After the adjustment,the:

When a company routinely sells on credit,it is inevitable that some of its customers will not pay the amount owed.

Which of the following statements about methods of accounting for bad debts is correct?

Extending credit to customers will introduce all of the following additional costs except:

When the allowance method is used,the entry to record the write-off of specific uncollectible accounts would decrease:

Generous Inc.lends Blue Inc.$40,000 on April 1 and receives a four-month,4.5% interest-bearing note.Generous Inc.prepares financial statements on April 30.What adjusting entry should be made by Generous Inc.before its financial statements are prepared?

Lakeview Inc.uses the allowance method.During the year,Lakeview concludes that specific customers will never pay their account balances,which total $6,844.The entry to record the write-off of these accounts receivable would debit:

Accounts receivable:

Allowance for Doubtful Accounts is a:

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.Suppose that three months after filing bankruptcy,Exquisite Flooring's customer paid its outstanding account balance.Which of the following journal entries would be made to record this transaction?

Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense.The balance of each account receivable is aged on the basis of three categories as follows: (1)1-30 days old,(2)30-90 days old,and (3)more than 90 days old.Based on experience,management has estimated what portion of receivables of a specific age will not be paid as follows: (1)1%,(2)15%,and (3)40%,respectively. At December 31,2016,the unadjusted credit balance in the Allowance for Doubtful Accounts was $100.The total Accounts Receivable in each age category were: (1)1-30 days old,$65,000,(2)30-90 days old,$10,000,and (3)more than 90 days old,$4,000. Required: Part a.Calculate the estimate of uncollectible accounts at December 31,2016. Part b.Prepare the appropriate adjusting entry dated December 31,2016.

Company A lends $100,000 to Company B.The interest on the loan is reported as:

If a $40,000,6%,note receivable with a two year maturity date was signed three months ago,how much interest has been earned?

The Corning Company uses the percent of sales method of accounting for uncollectible accounts receivable.At the beginning of the current year,the Allowance for Doubtful Accounts had normal balance of $8,000.The following transactions took place during the current year: Required: Part a.Prepare journal entries to record these transactions. Part b.Determine the balance of the Allowance for Doubtful Accounts at the end of the current year.Assume that the transactions above are the only transactions affecting this account during the year.

Match the term and its definition.There are more definitions than terms. Terms 1____ .Net Sales Revenue 2____ .Allowance Method 3____ .Notes Receivable 4____ .Accounts Receivable 5____ .Average Net Receivables 6____ .Subsidiary Account 7____ .Historical Percentage of Bad Debt Losses 8____ .Annual Interest Rate Definitions A.The amount of interest a lender receives during a year. B.A system used by companies to allocate their budgets over the different operating expenses. C.The numerator of the receivables turnover ratio. D.A separate record for each accounts receivable customer. E.Used by the percentage of credit sales method to estimate bad debts. F.Another name for a company's total revenue,which is calculated by multiplying the quantity sold by the average price. G.The costs of maintaining accounts with customers who have not made recent purchases. H.The interest that a company receives during the year divided by the principal of the loan. I.The rate at which a company pays off its liabilities or debts. J.The total amount of money loaned through notes that the lender has not yet collected. K.The denominator of the receivables turnover ratio. L.The average level of net sales revenue the firm earns each month. M.An accounting method which involves estimating bad debts. N.The portion of past credit sales that have not yet been collected.

Which method for estimating bad debts is generally considered to be the most accurate?