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Exam 5: Receivables and Sales

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Question 81

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The Sales Discounts account is an expense account.

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B) False

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Question 82

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On September 8, a company provides services on account to a customer for $1,500, terms 2/10, n/30. The customer pays for those services on September 15. Record the transactions for the company when the services are provided on September 8 and when the cash is collected on September 15.

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Question 83

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The net realizable value of accounts receivable is the full amount owed by customers.

On July 8, Ray Inc. sold 100 printers to Office Rental Company at $600 each and offered a 2% discount for payment within 10 days. On July 15, Office Rental Company paid the full amount in cash. What should Ray Inc. record on July 15?

The receivables turnover ratio equals average accounts receivable divided by net credit sales.

On October 22, a company provides services on account to a customer for $1,800, terms 3/15, n/30. The customer pays for those services on December 19. Record the transactions for the company when the services are provided on October 22 and when cash is collected on December 19.

Under the direct write-off method, recording an estimate of future uncollectible accounts includes a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.

On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on December 5. How would Flores record the collection of cash on December 5?

On April 1, 2012, a company loans one of its suppliers $50,000 and accepts a 24-month, 12% note receivable. Calculate the amount of interest revenue the company will recognize in 2012, 2013, and 2014.

On April 14, a company lends $10,000 cash to one of its employees and accepts a six-month, 12% note in return. Record the acceptance of the note receivable.

Using the allowance method, writing off an actual bad debts would include a:

At the end of the year, a company has the following accounts receivable and estimates of uncollectible accounts: 1. Accounts not yet due $= \$ 70,000$ ; estimated uncollectible $= 4 \%$ . 2. Accounts $1 - 30$ days past due $= \$ 30,000$ ; estimated uncollectible $= 15 \%$ . 3. Accounts more than 30 days past due $= \$ 5,000$ ; estimated uncollectible $= 40 \%$ . Record the year-end adjustment for uncollectible accounts, assuming the current balance of the Allowance for Uncollectible Accounts is $1,200 (debit).

A lower receivables turnover ratio generally indicates more favorable management of accounts receivable by company managers.

What does it mean to report accounts receivable at their net realizable value.

A company has the following balances on December 31, 2012, after year-end adjustments: Accounts Receivable = $75,000; Service Revenue = $400,000; Allowance for Uncollectible Accounts = $5,000; Cash = $20,000. Calculate the net realizable value of accounts receivable.

Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit) at the end of 2012, prior to any adjustments. The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of 2012. Total accounts receivable were $150,000 on December 31, 2012, and total credit sales for 2012 were $330,000. What amount of bad debt expense would appear in the company's 2012 income statement, assuming the company uses the percentage-of-receivables method?

The average collection period shows the approximate number of days the average accounts receivable balance is outstanding.

The Sales Discounts account is an example of a contra revenue account.

At the end of the year, a company has the following accounts receivable and estimates of uncollectible accounts: 1. Accounts not yet due $= \$ 80,000$ ; estimated uncollectible $= 2 \%$ . 2. Accounts $1 - 30$ days past due $= \$ 20,000$ ; estimated uncollectible $= 25 \%$ . 3. Accounts more than 30 days past due $= \$ 4,000$ ; estimated uncollectible $= 60 \%$ . Record the year-end adjustment for uncollectible accounts, assuming the current balance of the Allowance for Uncollectible Accounts is $900 (credit).

The percentage-of-receivables method for estimating uncollectible accounts is commonly referred to as the balance sheet method, because the estimate of bad debts is based on a balance sheet amount-accounts receivable.