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Exam 7: Reporting and Analyzing Receivables

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Question 21

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A company had net sales of $550,000 and an average accounts receivable of $110,000. Its accounts receivable turnover equals 5.0. Accounts Receivable Turnover = Net Sales/Average Accounts Receivable Accounts Receivable Turnover = $550,000/$110,000 = 5.0

A) True
B) False

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Question 22

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Flack Company receives a $20,000, 8%, 180 day note receivable from a customer. The total interest on this note is $1,600. $20,000 × .08 × 180/360 = $800

A) True
B) False

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Question 23

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A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is:

The percent of sales method for bad debts estimation uses only income statement account balances to estimate bad debts.

MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards. MacKenzie electronically remits the credit card sales receipts to the credit card company and receives payment in approximately 5 days. The journal entry to record this sale transaction would be:

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record this sale transaction would be:

A receivable is an amount due from another party.

Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its competitor, Stanley, had net sales of $290,000 and average accounts receivables of $61,350. Calculate the accounts receivable turnover for both companies. Which company is doing a better job of managing its accounts receivables?

All of the following statements regarding valuation of receivables under U.S. GAAP and IFRS are true except:

The accounts receivable turnover indicates how often, on average, accounts receivable are received and collected during the period.

Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

A Company had net sales of $23,000 million, and its average account receivables were $5,700 million. Its accounts receivable turnover is 0.24. Accounts Receivable Turnover = Net Sales/Average Accounts Receivable Accounts Receivable Turnover = $23,000/$5,700 = 4.0

Explain the difference between honoring and dishonoring a note receivable.

A company reports the following results in its financial statements: Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these two results and give a possible explanation for any significant change.

Stacey Corp. uses the direct write-off method to account for bad debts. On May 26 the company determines that a customer account with a balance of $750 is uncollectible. The journal entry to record this loss is:

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

The ________________________ method of computing uncollectible accounts use balance sheet relations to estimate bad debts-mainly the relation between accounts receivable and the allowance amount.