BHMH2101 Financial Accounting

Reinforcement exercise – Chapter 7(2)

Part A

1. The Allowance for Impairment will appear on the __________.

A. Income statement
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B. Statement of Financial Position
C. Cash flow statement
D. Statement of Changes in Equity

2. Uncollectible accounts expense:

A. Should not occur if the credit department properly investigates prospective
customers who wish to purchase merchandise on credit.
B. Is the amount of cash a business must pay each time a credit customer fails to pay
his or her account.
C. Is the amount a business must pay to a collection agency to recover amounts on
overdue accounts receivable.
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D. Represents the loss in value of accounts receivable that are estimated to be
uncollectible.

3. The Allowance for Impairment represents:

A. Cash set aside to make up for bad debt losses.
B. The amount of uncollectible accounts written off to date.
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C. The difference between total credit sales and collections on credit sales.
D. The difference between the face value of accounts receivable and the estimated
collectible amount of accounts receivable.

4. At December 31, before adjusting and closing the accounts had occurred, the
Allowance for Impairment of Seaboard Corporation showed a debit balance of $3,200.
An aging of the accounts receivable indicated the amount probably uncollectible to be
$2,100. Under these circumstances, a year-end adjusting entry for Impairment Loss of
Receivables would include a:
A. Debit to the Allowance for Impairment for $1,100.
B. Credit to the Allowance for Impairment for $1,100.
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C. Debit to Impairment Loss of Receivable for $2,100.
D. Debit to Impairment Loss of Receivable for $5,300.

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5. Oceanside Company uses the Statement of Financial Position approach in
estimating uncollectible accounts expense. It has just completed an aging analysis of
accounts receivable at December 31, 201Y. This analysis disclosed the following
information:

What is the appropriate balance for Oceanside's Allowance for Impairment at

December 31, 201Y
A. $95,000.
B. 2% of credit sales in 201Y.
C. $1,560. Saleswt
0
D. $2,160. -

Nhgo 575

Part B
Question 1

At the end of the year, 31 December 201X, the unadjusted trial balance of Angel
Company included the following accounts:
624460
Debit Credit
Sales (80% represent credit sales) $780,575
Accounts Receivable $101,475
Allowance for Impairment $1,218

(a) (i) If Angel Company uses the Statement of Financial Position Approach to
estimate uncollectible accounts, and aging the accounts receivable indicates
the estimated uncollectible portion to be $6,075, what will the Impairment
6075-1218 $ 4 8⽇
Loss of Receivable for the year be? _________________________________
⼆

(ii)Show the adjusting entry at year-end to record the Impairment Loss of

Receivable for the year.

Debit Credit
$ $
Zmpǎnrmeutlossofmewahk 4 8⽇
4的
Hlwauuforimpairmenf

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 (iii) The Accounts Receivable presented in the Angel Company’s Statement of
Financial Position at 12/31/201X would be:

$ $
Auomtuunable 1 014⽉
miallowanuforimpnrmenf 6075954 。

(b) (i) If Angel Company uses income statement approach to estimating the
uncollectible accounts, and the estimated uncollectible is to be 1% of net credit
sales, what is the amount of the Impairment Loss of Receivable for the year?
7 8⽇ 5 ✗ 81 州 $ 6 v45
(Round to integer)__________________________
=

(ii) Show the adjusting entry at year-end to record the Impairment Loss of
Receivable for the year.

Debit Credit
$ $
Impawmentlnsofreunvabk 6245
Mlowauwforlmpairment 6245

(iii) The Accounts Receivable presented in the Angel Company’s Statement of

Financial Position at 12/31/201X would be:

$ $
Auvmtwuhk 10 14⽇

hiallwauufnimpairmd 7463 9401 2

( 12181624 5)
Question 2 (past paper)

On 1 November, 2016, Eastern Company wrote off an account receivable of-

HK$10,300
as worthless because of the bankruptcy of the client, Western Company. However, this
amount was subsequently collected in full on 3 December, 2016.

Required:

Prepare the journal entries that Eastern Company would make upon the collection on
3 December, 2016.
Dr $ G$

Cash 10300

Allowmefrimpairmeut 103 v0

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