Financial and Managerial Accounting 10th Edition Needles Test Bank

Financial and Managerial Accounting 10th Edition

Needles Test Bank

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Chapter 8: Receivables

Student: ___________________________________________________________________________

1. Following a lenient credit-granting policy will probably result in fewer defaults by customers.
True False

2. Bad debts are considered as an expense of selling on credit.

True False

3. Notes receivable due within 90 days and cash are examples of short-term financial assets.
True False

4. Loans to company employees should be included with accounts receivable on the balance sheet.
True False

5. Because bad debt losses are incurred to generate sales, they should be charged against the sales that they
helped generate.
True False

6. The direct charge-off method makes no attempt to match bad-debt losses with revenues.
True False

7. The allowance method of handling bad debts violates the matching principle.
True False

8. Under the allowance method, Uncollectible Accounts Expense is not recorded when an individual customer
defaults.
True False
9. The existence of uncollectible accounts is evidence of poor credit policies.
True False

10. The direct charge-off method of recognizing uncollectible accounts is not in accordance with generally
accepted accounting principles.
True False

11. Both the allowance method and the direct charge-off method are acceptable for tax purposes.
True False

12. When using the direct charge-off method, year-end adjustments for uncollectible accounts expense are not
made.
True False

13. A promissory note may be issued for an amount to be determined at a future date.
True False

14. The debtor named in a promissory note is called the payee.

True False

15. When the allowance method is used, the write-off of an account receivable results in an expense at the time
of write-off.
True False

16. Under the allowance method, uncollectible accounts must be estimated if the matching rule is to be
followed.
True False

17. Under the accounts receivable aging method, the balance in Allowance for Uncollectible Accounts must be
considered prior to adjusting for estimated uncollectible accounts.
True False
18. The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total
of all accounts written off over the years.
True False

19. When an account receivable that was previously written off is collected, it is necessary to reverse the entry
for the write-off before recording the collection.
True False

20. Uncollectible accounts should not be estimated because it is impossible to know which accounts will not be
collected.
True False

21. The Allowance for Uncollectible Accounts is a contra-asset account.

True False

22. The percentage of net sales method of estimating uncollectible accounts is in violation of the matching
principle.
True False

23. The principal of a non-interest-bearing note includes an implied interest cost.

True False

24. A 60-day note dated December 10 is due on February 10.

True False

25. Interest on a six-month, 7 percent, $2,000 note is calculated by multiplying $2,000 ´ 7/100 ´ 6/12.
True False

26. If a promissory note is dishonored, the payee should record interest income.
True False
27. The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest
Income.
True False

28. The holder, or payee, of a dishonored note should transfer the total amount due, including interest income,
from Notes Receivable to an individual account receivable for the debtor.
True False

29. Purchasing receivables with recourse is riskier than purchasing them without recourse.
True False

30. A company's acceptance of credit cards, like MasterCard, is an example of factoring with recourse.
True False

31. It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net
income.
True False

32. Under securitization, a company sells individual receivables with recourse at a large discount.
True False

33. The fee for factoring without recourse is normally higher than it would be with recourse.
True False

34. A discounted note represents a contingent liability to the original holder.

True False

35. Days' sales uncollected cannot be calculated without first knowing the receivables turnover.
True False
36. The receivables turnover is expressed as a percentage.
True False

37. The higher the receivables turnover, the lower the days' sales uncollected.
True False

38. A company that factors its receivables will have a less favorable receivable turnover than a company that
does not factor.
True False

39. Securitization delays the receipt of cash from sales made on credit.
True False

40. When Company A discounts without recourse a note to Company B, Company A has a contingent liability
until the note is paid.
True False

41. Which of the following accounts is classified as a short-term financial asset?

A. Office Supplies
B. Accounts Receivable
C. Equipment
D. Prepaid Insurance

42. The allowance for uncollectible accounts is necessary because

A. a liability results when a credit sale is made.
B. when recording uncollectible accounts expense, it is not possible to predict specifically which accounts will
not be collected.
C. management should know how many credit losses have been sustained over the years.
D. uncollected accounts that are written off must be accumulated in a separate account.

43. The matching rule

A. results in the recording of a known amount for bad-debt losses.
B. necessitates the recording of an estimated amount for bad debts.
C. requires that all bad-debt losses be recorded when an individual customer defaults.
D. is violated when the allowance method is employed.
44. The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be
recorded
A. in the period of the loss.
B. for an exact amount.
C. in the same period as allowed for tax purposes.
D. in the period of the sale.

45. Under the direct charge-off method of dealing with uncollectible accounts,
A. revenues and expenses are properly matched.
B. Accounts Receivable is shown on the balance sheet at net realizable value.
C. Uncollectible Accounts Expense is recorded in the period of the sale.
D. no Allowance for Uncollectible Accounts exists.

46. Each of the following is a characteristic of a promissory note except a(n)

A. maturity date that can be determined on the date the note is signed.
B. payee who has an unconditional right to receive a definite amount on a definite date.
C. maker who agrees to pay a definite sum subject to certain conditions.
D. amount to be paid that can be determined on the date the note is signed.

47. Which of the following statements is false regarding promissory notes?

A. They are sometimes used to extend past-due accounts.
B. They can be resold to banks.
C. They must be held by the maker until maturity.
D. They are often received upon the sale of machinery and automobiles.

48. Assume that on December 1, a $6,000, 90-day, 10 percent note receivable was received from a customer as
an extension of his past-due account. The entry that would be made to record the note is:
A. Notes Receivable 6,000
Cash 6,000
B. Notes Receivable 6,000
Interest Income 6,000
C. Notes Receivable 6,000
Accounts Receivable 6,000
D. Cash 6,000
Accounts Receivable 6,000
49. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the percentage of net sales method, Uncollectible Accounts Expense would be debited for
A. $9,000.
B. $11,000.
C. $1,000.
D. $10,000.

50. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $494,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment)
would be
A. $8,880.
B. $9,880.
C. $10,880.
D. $1,000.

51. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $11,700 of uncollectible accounts.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance would be
credited for
A. $10,700.
B. $11,700.
C. $12,200.
D. $12,700.
52. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a debit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance (after
adjustment) would be
A. $14,500.
B. $14,000.
C. $13,500.
D. $12,500.

53. The balance in Allowance for Uncollectible Accounts must be considered prior to end-of-period adjustment
when using which of the following methods?
A. Direct charge-off method
B. Both direct charge-off method and percentage of net sales method
C. Percentage of net sales method
D. Accounts receivable aging method

54. Using the percentage of net sales method, uncollectible accounts expense for the year is estimated to be
$44,000. If the balance of the Allowance for Uncollectible Accounts is a $9,000 credit before adjustment, what
is the balance after adjustment?
A. $9,000
B. $35,000
C. $44,000
D. $53,000

55. Using the accounts receivable aging method, estimated uncollectible accounts are $40,000. If the balance of
the Allowance for Uncollectible Accounts is an $8,000 debit before adjustment, what is the balance after
adjustment?
A. $8,000
B. $32,000
C. $40,000
D. $48,000
56. The balance of Accounts Receivable, net of the allowance account, is $25,000 before the write-off of a
$2,000 account. What is the Accounts Receivable balance, net of the allowance account, after the write-off?
A. $2,000
B. $23,000
C. $25,000
D. $27,000

57. Under the allowance method, when a specific account is written off,
A. total assets will be unchanged.
B. total assets will decrease.
C. net income will decrease.
D. total assets will increase.

58. A company that uses the allowance method writes off a specific account as uncollectible, but then the
customer pays. The entries made upon receiving payment will
A. decrease Cash.
B. decrease Allowance for Uncollectible Accounts.
C. increase Allowance for Uncollectible Accounts.
D. decrease Uncollectible Accounts Expense.

59. Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts,
A. total assets decrease.
B. liabilities increase.
C. total assets are unchanged.
D. net income is unchanged.

60. One might infer from a debit balance in Allowance for Uncollectible Accounts that
A. a posting error has been made.
B. Uncollectible Accounts Expense has been overestimated.
C. the accounts receivable aging method apparently is being used.
D. more has been written off than had been estimated.

61. A company performs the aging of accounts receivable calculation and arrives at an estimate for
uncollectible accounts of $900. If Allowance for Uncollectible Accounts has a debit balance of $200 prior to the
year-end adjustment, for how much should the adjustment be journalized?
A. $200
B. $700
C. $900
D. $1,100
62. A company has net sales of $50,000 during the year. At year end (before an adjustment is made), Allowance
for Uncollectible Accounts has a credit balance of $2,500. If the company estimates that 3 percent of net sales
are uncollectible, what is the balance in the allowance account after the year-end adjustment has been made
using the percentage of net sales method?
A. $1,500 debit balance
B. $1,500 credit balance
C. $4,000 credit balance
D. $1,000 debit balance

63. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the percentage of net sales method, the entry to record the Uncollectible Accounts Expense would be:
A. Uncollectible Accounts Expense 12,000
Allowance for Uncollectible Accounts 12,000
B. Uncollectible Accounts Expense 15,000
Allowance for Uncollectible Accounts 15,000
C. Allowance for Uncollectible Accounts 18,000
Uncollectible Accounts Expense 18,000
D. Allowance for Uncollectible Accounts 20,000
Uncollectible Accounts Expense 20,000

64. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment)
would be
A. $12,000.
B. $15,000.
C. $18,000.
D. $20,000.
65. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the accounts receivable aging method, the entry to record Uncollectible Accounts Expense would be:
A. Uncollectible Accounts Expense 21,500
Allowance for Uncollectible Accounts 21,500
B. Uncollectible Accounts Expense 17,000
Allowance for Uncollectible Accounts 17,000
C. Allowance for Uncollectible Accounts 20,000
Uncollectible Accounts Expense 20,000
D. Allowance for Uncollectible Accounts 23,000
Uncollectible Accounts Expense 23,000

66. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance (after
adjustment) would be
A. $17,000.
B. $20,000.
C. $21,500.
D. $23,000.

67. You have just received notice that Agnes Fisher, a customer of yours with an Accounts Receivable balance
of $200, has gone bankrupt and will not be making any future payments. Assuming you use the allowance
method, the journal entry you make is to
A. debit Uncollectible Accounts Expense and credit Accounts Receivable.
B. debit Allowance for Uncollectible Accounts and credit Uncollectible Accounts Expense.
C. debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts.
D. debit Allowance for Uncollectible Accounts and credit Accounts Receivable.

68. If the amount of uncollectible accounts expense is understated at year end,

A. net Accounts Receivable will be understated.
B. total liabilities will be overstated.
C. net income will be understated.
D. Allowance for Uncollectible Accounts will be understated.
69. Caudill Sales Company made most of its sales on credit during its first year of operation, 2014. At the end
of the year, accounts receivable amounted to $100,000. On December 31, 2014, management reviewed the
collectible status of the accounts receivable. Approximately $6,000 of the $100,000 of accounts receivable were
estimated to be uncollectible. As per the accounts receivable aging method the adjusting entry that would be
made on December 31 of that year is:
A. Uncollectible Accounts Expense 6,000
Accounts Receivable 6,000
B. Allowance for Uncollectible Accounts 10,000
Uncollectible Accounts Expense 10,000
C. Uncollectible Accounts Expense 6,000
Allowance for Uncollectible Accounts 6,000
D. Allowance for Uncollectible Accounts 10,000
Accounts Receivable 10,000

70. Assume that on February 25, a customer who owes Berry Sales Company $2,000 is declared bankrupt by a
federal court. The entry that would be made to write off this account is:
A. Allowance for Uncollectible Accounts 2,000
Accounts Receivable/Customer Account 2,000
B. Accounts Receivable/Customer Account 2,000
Allowance for Uncollectible Accounts 2,000
C. Accounts Receivable 2,000
Notes Receivable 2,000
D. Cash 2,000
Accounts Receivable 2,000

71. The account Allowance for Uncollectible Accounts is classified as a(n)

A. contra account to Uncollectible Accounts Expense.
B. expense.
C. liability.
D. contra account to Accounts Receivable.

72. Under the allowance method, Uncollectible Accounts Expense is recorded

A. for an estimated amount.
B. several times during the accounting period.
C. when an individual account is written off.
D. for a known amount.
73. Assume that on October 1, a note which has a face value of $2,000, bears interest at 6 percent for 90 days,
received from a customer as an extension of his past-due account is honored on its due date. The entry that
would be made to record the receipt on due date is:
A. Notes Receivable 2,000
Cash 2,000
B. Accounts Receivable 2,000
Interest Revenue 30
Cash 2,030
C. Accounts Receivable 2,030
Notes Receivable 2,030
D. Cash 2,030
Interest Revenue 30
Notes Receivable 2,000

74. A note receivable dated May 23 and due in 90 days would be due on
A. August 20.
B. August 21.
C. August 23.
D. August 22.

75. The interest on a three-month, 12 percent, $16,200 note receivable is

A. $486.
B. $162.
C. $324.
D. $1,944.

76. The maturity value of a 60-day, 9 percent, $4,000 note receivable is

A. $3,940.66.
B. $3,641.78.
C. $4,059.18
D. $4,360.24.

77. Interest on a 180-day, 10 percent, $10,000 note receivable is

A. $5,001.54.
B. $576.76.
C. $493.15.
D. $2001.26.
78. Interest on a note receivable may be calculated without knowledge of the
A. principal amount.
B. rate of interest.
C. note's maturity date.
D. note's duration.

79. A promissory note is executed in June. When the note is paid the following January, the payee's entry
includes (assuming a calendar-year accounting period and no reversing entries) a
A. debit to Interest Income.
B. credit to Cash.
C. credit to Interest Receivable.
D. debit to Notes Receivable.

80. When a note is dishonored, the payee's journal entry includes a

A. debit to Accounts Receivable.
B. debit to Interest Expense.
C. debit to Notes Receivable.
D. debit to Interest Income.

81. Assume that the $2,000, 90-day, 8 percent note was received on August 31 and that the fiscal year ended on
September 30. The adjusting entry that would be made to record the interest receivable is (amounts rounded to
nearest dollar):
A. Interest Receivable 13
Interest Income 13
B. Notes Receivable 13
Interest Income 13
C. Accounts Receivable 39
Cash 39
D. Interest Income 39
Accounts Receivable 39

82. Assume that on November 1, a note which has a face value of $9,000, bears interest at 9 percent for 120
days, received from a customer as an extension of her past-due account is dishonored. The entry that would be
made to record the dishonor include all except
A. a debit to Accounts Receivable for $9,000.
B. a credit to Interest Income for $266.
C. a credit to Notes Receivable for $9,000.
D. a debit to Accounts Receivable for $9,266.
83. If the amount of uncollectible accounts expense is overstated at year end,
A. Allowance for Uncollectible Accounts will be understated.
B. net income will be overstated.
C. net Accounts Receivable will be understated.
D. total liabilities and stockholders' equity will be overstated.

84. A company's acceptance of credit cards like Visa is an example of

A. securitization.
B. factoring with recourse.
C. discounting.
D. factoring without recourse.

85. The sale or transfer of accounts receivable to raise funds is called

A. discounting.
B. collateralizing.
C. pledging.
D. factoring.

86. Which of the following topics involves a contingent liability?

A. Installment accounts receivable
B. A discounted note receivable
C. Securitization
D. Credit card sales

87. If the receivables turnover is 3.1 times, what is the days’ sales uncollected?
A. 10 days
B. 85 days
C. 118 days
D. cannot be determined with information given

88. If average accounts receivable is $35,000 and net sales total $100,000, what is the receivables turnover?
A. 0.3 times
B. 0.4 times
C. 2.9 times
D. 126 times
89. Which of the following statements is true about factoring without recourse?
A. The seller of the receivables is liable upon default of the debtor.
B. The factor's risk is lower than if the factoring were with recourse.
C. An example is the use of major credit cards.
D. The fee will be lower than if the factoring were with recourse.

90. If net sales total $50,000, beginning accounts receivable was $10,000, and ending accounts receivable is
16,000, what is the receivables turnover?
A. 1.9 times
B. 3.1 times
C. 3.8 times
D. 5 times

91. If net sales total $50,000, beginning accounts receivable was $10,000, and ending accounts receivable is
16,000, what is the days’ sales collected?
A. 73 days
B. 96 days
C. 118 days
D. 192 days

92. Which of the following statements is not true when FLK Company discounts a note receivable to the bank?
A. FLK may ultimately have to pay the bank when the note is due.
B. If the maker of the note pays the bank on time, no liability will result to FLK.
C. FLK will receive the maturity value from the bank.
D. A contingent liability arises for FLK.

93. Which of the following situations results in a contingent liability?

A. Making a credit card sale
B. Dishonoring a note
C. Estimating uncollectible accounts expense
D. Discounting a note

94. The receivables turnover is expressed in terms of

A. times.
B. days.
C. a percentage.
D. dollars.
95. Days' sales uncollected equals 365 days divided by
A. net sales.
B. average net accounts receivable.
C. net income.
D. the receivable turnover.

96. How is the account Allowance for Uncollectible Accounts presented in the financial statements, and what
purpose does this presentation serve?

97. Explain the two methods used to estimate uncollectible accounts.

98. Why should a dishonored note receivable be transferred to an individual account receivable for the debtor?
99. What is a contingent liability, and how does it relate to the discounting of a note receivable at the bank?

100. What purpose is served by a factoring arrangement? What does it mean to factor accounts receivable with
recourse?

101. Match each description with the letter of the term to which it corresponds.

1. Grouping receivables in batches and selling

them at a discount discounting ____
2. Estimates bad debts as a percentage of net sales factoring ____
3. Recognizing a loss only when a specific account
receivable is determined to be uncollectible securitization ____
4. Shows how many times, on average, a company days’ sales
turned its receivables into cash during a period uncollected ____
5. Selling notes receivable to a bank receivables turnover ____
6. Shows how long it takes to collect accounts direct charge-off
receivable method ____
7. Estimates bad debts to be matched with the
revenues they helped to produce allowance method ____
8. Selling or transferring accounts receivable to percentage of net
another entity sales method ____
102. Sam’s Menswear has $11,600 in Accounts Receivable at December 31. Sam's accountant estimates that
$600 of the $11,600 will never be collected. Complete the current asset section of the balance sheet below.

Curre
nt
assets:
Cash $ 28,000
Short-term investments 8,000
Accounts receivable

Inventory 100,000
Total $ .
curren
t
assets

103. A company has the following listed asset accounts. Determine the amount that should appear on the
balance sheet as the total current assets.

Cash $ 25,000
Short-Term Investments 10,000
Accounts Receivable 20,000
Allowance for Uncollectible Accounts 500
Inventory 100,000
Equipment 100,000
Land 75,000
Building 200,000
104. Use the following T account to answer the questions below (assume a calendar-year accounting period).

Allowance
for
Uncollectib
le
Accounts
1/10 600 1/15 600
5/12 880 12/31 7,200

What apparently occurred on:

a. January 10?
b. January 15?
c. May 12?
d. December 31?

105. Using the following transactions for 2014, show how the T account below would appear after all
appropriate postings have been made. Assume an opening balance of $900.

Feb. 13 Wrote off an individual account for $1,000.

21 Reinstated the account written off on February 13.
July 8 Wrote off an individual account for $700.
Dec. 31 Made year-end adjustment of $800 for estimated uncollectible accounts.

Allowance
for
Uncollectib
le
Accounts
1/1 900
106. On December 31, Ferndale Enterprises has an $800 debit balance in Allowance for Uncollectible
Accounts. If an accounts receivable aging method analysis indicated that an estimated $6,400 of December 31
receivables are uncollectible, for what amount would the adjusting entry for uncollectible accounts be recorded?
(Show your work.)

107. On December 31, Jameson Products has a $300 credit balance in Allowance for Uncollectible Accounts. It
estimates that 4 percent of the $60,000 in sales are uncollectible. After the appropriate adjusting entry for
uncollectible accounts has been made, what will be the balance in Allowance for Uncollectible Accounts using
the percentage of net sales method? Indicate if the balance is a debit or credit. (Show your work.)
108. At year end, MWE Graphics has a $700 debit balance in Allowance for Uncollectible Accounts. It
estimates that 5 percent of the $40,000 in sales are uncollectible. Give the amount that should be used in the
adjusting entry to record uncollectible accounts using the percentage of net sales method. (Show your
calculations.)

109. At year end, Korkin Design Company has a $900 credit balance in Allowance for Uncollectible Accounts.
If an accounts receiving aging method analysis indicates that an estimated $5,700 of year-end receivables are
uncollectible, what will be the balance in Allowance for Uncollectible Accounts after the appropriate adjusting
entry for uncollectible accounts has been made? Indicate if the balance is a debit or credit.

110. Assume that part of accounts and other receivables on Trejada Toys' balance sheet is $8 million as of
February 2, 2014. Also assume that Allowance for Uncollectible Accounts has a credit balance of $275,000,
that Trejada estimates its uncollectible accounts as 0.1 percent of net sales, and the amount of sales is
$5,509,500,000. Record the adjusting entry to recognize uncollectible accounts using the percentage of net sales
method.

GENER
AL
JOURN
AL
Post.
Date Descri Ref. Debit Credit
ption
111. Assume that part of accounts and other receivables on Trejada’s Toys' balance sheet is $8 million and that
Thompson estimates its uncollectible accounts as 1 percent of accounts receivable not yet due, 2 percent of
accounts receivable between 1 and 60 days past due, and 10 percent of accounts receivable over 60 days past
due. Determine the amount of Trejada’s adjusting entry to recognize uncollectible accounts using the accounts
receivable aging method, based on the following information:

Accounts receivable not yet due $300,000

Accounts receivable 1 - 60 days past due 100,000
Accounts receivable over 60 days past due 50,000

112. The general ledger account for Accounts Receivable shows a debit balance of $40,000. The Allowance for
Uncollectible Accounts has a credit balance of $2,000. Net sales for the year were $250,000. In the past, 3
percent of net sales have proved uncollectible. An aging of accounts receivable accounts results in an estimate
of $9,000 of uncollectible accounts receivable. Calculate (1) Uncollectible Accounts Expense and (2) the ending
balance of the Allowance for Uncollectible Accounts using (a) the percentage of net sales method and (b) the
accounts receivable aging method for both (1) and (2).
113. Chao Corporation uses the accounts receivable aging method to account for Uncollectible Accounts
Expense. As of December 31, Chao's accountant prepared the following data about ending receivables: $40,000
was not yet due (1 percent expected not to be collected), $20,000 was 1-60 days past due (4 percent expected
not to be collected), and $4,000 was over 60 days past due (8 percent expected not to be collected). At
December 31, Allowance for Uncollectible Accounts had a credit balance prior to adjustment of $400. In the
journal provided, prepare Chao's end-of-period adjustment for estimated uncollectible accounts. Also prepare
the entry that would have been made had the credit balance instead been a debit balance.

GENER
AL
JOURN
AL
Post.
Date Descri Ref. D Credit
ption e
b
it
114. Assuming that the allowance method is being used, prepare journal entries to record the following
transactions. Omit explanations.

Mar. 15 Sold merchandise to Foster for $12,000 on account.

Apr. 15 Received $6,000 from Foster.
Aug. 15 Wrote off Foster's account as uncollectible.
Nov. 15 Unexpectedly received payment in full from Foster.

GENERA
L
JOURNA
L
Post.
Date Descri Ref. D Credit
ption e
b
it

115. In the journal provided, prepare the entries for the following transactions. (Omit explanations.)

Dec. 1 Sold merchandise on account to Wilma Phillips for $300.

12 Received payment of $200 from Wilma Phillips.
31 Made adjusting entry for Uncollectible Accounts Expense, using the percentage of net sales method. Net sales for the year
totaled $28,000, uncollectible accounts are estimated at 2 percent, and Allowance for Uncollectible Accounts has a $100
credit balance prior to adjustment.
Feb. 5 Wrote off Wilma Phillip's balance because she filed for bankruptcy.
17 Unexpectedly received the $100 from Wilma Phillips.
GENER
AL
JOURN
AL
Post.
Date Descri Ref. D Credit
ption e
b
it
116. Assume that part of accounts and other receivables on Trejada’s Toys' February 2, 2014, balance sheet is
comprised of $43,225,000 of notes receivable. Two notes make up the amount. The first note has a face value of
$30,000,000 and bears interest at 7 percent for 90 days. The second note has a face value of $13,225,000 and
bears interest at 9 percent for 120 days. Record the journal entry for the collection of the 7 percent note on May
3 and the dishonor of the 9 percent note on June 2. (Omit explanations; assume no interest had been accrued;
amounts rounded to nearest dollar.)

GENERAL
JOURNAL
Pos
Date Desc t. D Credit
riptio Ref. e
n b
it

117. In the journal provided, prepare entries for the following (assume a calendar-year accounting period). Omit
explanations.

Dec. 1 Received a three-month, 15 percent note receivable for $7,840 from a customer as an extension of her past-due account.
31 Made the year-end adjustment for accrued interest.
Mar. 1 Received full payment on the note.
GENER
AL
JOURN
AL
Pos
Date Descri t. Deb Credit
ption Ref. it

118. Determine the interest on the following notes payable:

a. $6,000 at 10 percent for 60 days

b. $600 at 16 percent for 4 months
c. $10,000 at 12 percent for 45 days
d. $900 at 14 percent for 30 days
119. Brashear Corporation engaged in the following transactions involving promissory notes in 2014 and 2015.
Journalize these transactions in the journal provided. (Omit explanations.) Round to nearest whole dollar.

2014
Sept. 1 Sold land to Wayne Petry for $30,000. A six-month, 10 percent note was received in exchange (no gain or loss realized).
Nov. 1 Received a 30-day, 12 percent note receivable from Pat Lawhorn in settlement of her accounts receivable of $500.
Dec. 1 Pat Lawhorn dishonored her note issued 30 days earlier. Round computations to nearest whole dollar.
31 Recorded accrued interest on the note received on September 1.

2015
Mar. 1 Received payment in full from Wayne Petry.

GENERA
L
JOURNA
L
Post.
Date Descri Ref. Debit Credit
ption

120. The following data exist for Weaver Company:

2014 2013
Accounts receivable $ 160,000 $180,000
Sales 1,066,000 821,000
Calculate the receivables turnover and the average days' sales uncollected for 2014. (Round to 1 decimal point and even days, respectively.)

121. The following data exist for Sexton Company:

2014 2013
Accounts receivable $ 130,000 $110,000
Sales 855,000 795,000

Calculate the receivables turnover and the average days' sales uncollected for 2014. (Round to 1 decimal point and even days, respectively.)
Chapter 8: Receivables Key

1. Following a lenient credit-granting policy will probably result in fewer defaults by customers.
FALSE

2. Bad debts are considered as an expense of selling on credit.

TRUE

3. Notes receivable due within 90 days and cash are examples of short-term financial assets.
TRUE

4. Loans to company employees should be included with accounts receivable on the balance sheet.
FALSE

5. Because bad debt losses are incurred to generate sales, they should be charged against the sales that they
helped generate.
TRUE

6. The direct charge-off method makes no attempt to match bad-debt losses with revenues.
TRUE

7. The allowance method of handling bad debts violates the matching principle.
FALSE

8. Under the allowance method, Uncollectible Accounts Expense is not recorded when an individual customer
defaults.
TRUE
9. The existence of uncollectible accounts is evidence of poor credit policies.
FALSE

10. The direct charge-off method of recognizing uncollectible accounts is not in accordance with generally
accepted accounting principles.
TRUE

11. Both the allowance method and the direct charge-off method are acceptable for tax purposes.
FALSE

12. When using the direct charge-off method, year-end adjustments for uncollectible accounts expense are not
made.
TRUE

13. A promissory note may be issued for an amount to be determined at a future date.
FALSE

14. The debtor named in a promissory note is called the payee.

FALSE

15. When the allowance method is used, the write-off of an account receivable results in an expense at the time
of write-off.
FALSE

16. Under the allowance method, uncollectible accounts must be estimated if the matching rule is to be
followed.
TRUE

17. Under the accounts receivable aging method, the balance in Allowance for Uncollectible Accounts must be
considered prior to adjusting for estimated uncollectible accounts.
TRUE
18. The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total
of all accounts written off over the years.
FALSE

19. When an account receivable that was previously written off is collected, it is necessary to reverse the entry
for the write-off before recording the collection.
TRUE

20. Uncollectible accounts should not be estimated because it is impossible to know which accounts will not be
collected.
FALSE

21. The Allowance for Uncollectible Accounts is a contra-asset account.

TRUE

22. The percentage of net sales method of estimating uncollectible accounts is in violation of the matching
principle.
FALSE

23. The principal of a non-interest-bearing note includes an implied interest cost.

TRUE

24. A 60-day note dated December 10 is due on February 10.

FALSE

25. Interest on a six-month, 7 percent, $2,000 note is calculated by multiplying $2,000 ´ 7/100 ´ 6/12.
TRUE

26. If a promissory note is dishonored, the payee should record interest income.
TRUE
27. The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest
Income.
TRUE

28. The holder, or payee, of a dishonored note should transfer the total amount due, including interest income,
from Notes Receivable to an individual account receivable for the debtor.
TRUE

29. Purchasing receivables with recourse is riskier than purchasing them without recourse.
FALSE

30. A company's acceptance of credit cards, like MasterCard, is an example of factoring with recourse.
FALSE

31. It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net
income.
TRUE

32. Under securitization, a company sells individual receivables with recourse at a large discount.
FALSE

33. The fee for factoring without recourse is normally higher than it would be with recourse.
TRUE

34. A discounted note represents a contingent liability to the original holder.

TRUE

35. Days' sales uncollected cannot be calculated without first knowing the receivables turnover.
TRUE
36. The receivables turnover is expressed as a percentage.
FALSE

37. The higher the receivables turnover, the lower the days' sales uncollected.
TRUE

38. A company that factors its receivables will have a less favorable receivable turnover than a company that
does not factor.
FALSE

39. Securitization delays the receipt of cash from sales made on credit.
FALSE

40. When Company A discounts without recourse a note to Company B, Company A has a contingent liability
until the note is paid.
FALSE

41. Which of the following accounts is classified as a short-term financial asset?

A. Office Supplies
B. Accounts Receivable
C. Equipment
D. Prepaid Insurance

42. The allowance for uncollectible accounts is necessary because

A. a liability results when a credit sale is made.
B. when recording uncollectible accounts expense, it is not possible to predict specifically which accounts will
not be collected.
C. management should know how many credit losses have been sustained over the years.
D. uncollected accounts that are written off must be accumulated in a separate account.

43. The matching rule

A. results in the recording of a known amount for bad-debt losses.
B. necessitates the recording of an estimated amount for bad debts.
C. requires that all bad-debt losses be recorded when an individual customer defaults.
D. is violated when the allowance method is employed.
44. The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be
recorded
A. in the period of the loss.
B. for an exact amount.
C. in the same period as allowed for tax purposes.
D. in the period of the sale.

45. Under the direct charge-off method of dealing with uncollectible accounts,
A. revenues and expenses are properly matched.
B. Accounts Receivable is shown on the balance sheet at net realizable value.
C. Uncollectible Accounts Expense is recorded in the period of the sale.
D. no Allowance for Uncollectible Accounts exists.

46. Each of the following is a characteristic of a promissory note except a(n)

A. maturity date that can be determined on the date the note is signed.
B. payee who has an unconditional right to receive a definite amount on a definite date.
C. maker who agrees to pay a definite sum subject to certain conditions.
D. amount to be paid that can be determined on the date the note is signed.

47. Which of the following statements is false regarding promissory notes?

A. They are sometimes used to extend past-due accounts.
B. They can be resold to banks.
C. They must be held by the maker until maturity.
D. They are often received upon the sale of machinery and automobiles.

48. Assume that on December 1, a $6,000, 90-day, 10 percent note receivable was received from a customer as
an extension of his past-due account. The entry that would be made to record the note is:
A. Notes Receivable 6,000
Cash 6,000
B. Notes Receivable 6,000
Interest Income 6,000
C. Notes Receivable 6,000
Accounts Receivable 6,000
D. Cash 6,000
Accounts Receivable 6,000
49. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the percentage of net sales method, Uncollectible Accounts Expense would be debited for
A. $9,000.
B. $11,000.
C. $1,000.
D. $10,000.

50. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $494,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment)
would be
A. $8,880.
B. $9,880.
C. $10,880.
D. $1,000.

51. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $11,700 of uncollectible accounts.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance would be
credited for
A. $10,700.
B. $11,700.
C. $12,200.
D. $12,700.
52. Use this information to answer the following question.

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a debit balance of $1,000. Net sales for the year were $500,000. In the past, 2
percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate
of $13,500 of uncollectible accounts.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance (after
adjustment) would be
A. $14,500.
B. $14,000.
C. $13,500.
D. $12,500.

53. The balance in Allowance for Uncollectible Accounts must be considered prior to end-of-period adjustment
when using which of the following methods?
A. Direct charge-off method
B. Both direct charge-off method and percentage of net sales method
C. Percentage of net sales method
D. Accounts receivable aging method

54. Using the percentage of net sales method, uncollectible accounts expense for the year is estimated to be
$44,000. If the balance of the Allowance for Uncollectible Accounts is a $9,000 credit before adjustment, what
is the balance after adjustment?
A. $9,000
B. $35,000
C. $44,000
D. $53,000

55. Using the accounts receivable aging method, estimated uncollectible accounts are $40,000. If the balance of
the Allowance for Uncollectible Accounts is an $8,000 debit before adjustment, what is the balance after
adjustment?
A. $8,000
B. $32,000
C. $40,000
D. $48,000
56. The balance of Accounts Receivable, net of the allowance account, is $25,000 before the write-off of a
$2,000 account. What is the Accounts Receivable balance, net of the allowance account, after the write-off?
A. $2,000
B. $23,000
C. $25,000
D. $27,000

57. Under the allowance method, when a specific account is written off,
A. total assets will be unchanged.
B. total assets will decrease.
C. net income will decrease.
D. total assets will increase.

58. A company that uses the allowance method writes off a specific account as uncollectible, but then the
customer pays. The entries made upon receiving payment will
A. decrease Cash.
B. decrease Allowance for Uncollectible Accounts.
C. increase Allowance for Uncollectible Accounts.
D. decrease Uncollectible Accounts Expense.

59. Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts,
A. total assets decrease.
B. liabilities increase.
C. total assets are unchanged.
D. net income is unchanged.

60. One might infer from a debit balance in Allowance for Uncollectible Accounts that
A. a posting error has been made.
B. Uncollectible Accounts Expense has been overestimated.
C. the accounts receivable aging method apparently is being used.
D. more has been written off than had been estimated.

61. A company performs the aging of accounts receivable calculation and arrives at an estimate for
uncollectible accounts of $900. If Allowance for Uncollectible Accounts has a debit balance of $200 prior to the
year-end adjustment, for how much should the adjustment be journalized?
A. $200
B. $700
C. $900
D. $1,100
62. A company has net sales of $50,000 during the year. At year end (before an adjustment is made), Allowance
for Uncollectible Accounts has a credit balance of $2,500. If the company estimates that 3 percent of net sales
are uncollectible, what is the balance in the allowance account after the year-end adjustment has been made
using the percentage of net sales method?
A. $1,500 debit balance
B. $1,500 credit balance
C. $4,000 credit balance
D. $1,000 debit balance

63. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the percentage of net sales method, the entry to record the Uncollectible Accounts Expense would be:
A. Uncollectible Accounts Expense 12,000
Allowance for Uncollectible Accounts 12,000
B. Uncollectible Accounts Expense 15,000
Allowance for Uncollectible Accounts 15,000
C. Allowance for Uncollectible Accounts 18,000
Uncollectible Accounts Expense 18,000
D. Allowance for Uncollectible Accounts 20,000
Uncollectible Accounts Expense 20,000

64. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment)
would be
A. $12,000.
B. $15,000.
C. $18,000.
D. $20,000.
65. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the accounts receivable aging method, the entry to record Uncollectible Accounts Expense would be:
A. Uncollectible Accounts Expense 21,500
Allowance for Uncollectible Accounts 21,500
B. Uncollectible Accounts Expense 17,000
Allowance for Uncollectible Accounts 17,000
C. Allowance for Uncollectible Accounts 20,000
Uncollectible Accounts Expense 20,000
D. Allowance for Uncollectible Accounts 23,000
Uncollectible Accounts Expense 23,000

66. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for
Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3
percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of
$20,000 of uncollectible accounts receivable.

Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance (after
adjustment) would be
A. $17,000.
B. $20,000.
C. $21,500.
D. $23,000.

67. You have just received notice that Agnes Fisher, a customer of yours with an Accounts Receivable balance
of $200, has gone bankrupt and will not be making any future payments. Assuming you use the allowance
method, the journal entry you make is to
A. debit Uncollectible Accounts Expense and credit Accounts Receivable.
B. debit Allowance for Uncollectible Accounts and credit Uncollectible Accounts Expense.
C. debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts.
D. debit Allowance for Uncollectible Accounts and credit Accounts Receivable.

68. If the amount of uncollectible accounts expense is understated at year end,

A. net Accounts Receivable will be understated.
B. total liabilities will be overstated.
C. net income will be understated.
D. Allowance for Uncollectible Accounts will be understated.
69. Caudill Sales Company made most of its sales on credit during its first year of operation, 2014. At the end
of the year, accounts receivable amounted to $100,000. On December 31, 2014, management reviewed the
collectible status of the accounts receivable. Approximately $6,000 of the $100,000 of accounts receivable were
estimated to be uncollectible. As per the accounts receivable aging method the adjusting entry that would be
made on December 31 of that year is:
A. Uncollectible Accounts Expense 6,000
Accounts Receivable 6,000
B. Allowance for Uncollectible Accounts 10,000
Uncollectible Accounts Expense 10,000
C. Uncollectible Accounts Expense 6,000
Allowance for Uncollectible Accounts 6,000
D. Allowance for Uncollectible Accounts 10,000
Accounts Receivable 10,000

70. Assume that on February 25, a customer who owes Berry Sales Company $2,000 is declared bankrupt by a
federal court. The entry that would be made to write off this account is:
A. Allowance for Uncollectible Accounts 2,000
Accounts Receivable/Customer Account 2,000
B. Accounts Receivable/Customer Account 2,000
Allowance for Uncollectible Accounts 2,000
C. Accounts Receivable 2,000
Notes Receivable 2,000
D. Cash 2,000
Accounts Receivable 2,000

71. The account Allowance for Uncollectible Accounts is classified as a(n)

A. contra account to Uncollectible Accounts Expense.
B. expense.
C. liability.
D. contra account to Accounts Receivable.

72. Under the allowance method, Uncollectible Accounts Expense is recorded

A. for an estimated amount.
B. several times during the accounting period.
C. when an individual account is written off.
D. for a known amount.
73. Assume that on October 1, a note which has a face value of $2,000, bears interest at 6 percent for 90 days,
received from a customer as an extension of his past-due account is honored on its due date. The entry that
would be made to record the receipt on due date is:
A. Notes Receivable 2,000
Cash 2,000
B. Accounts Receivable 2,000
Interest Revenue 30
Cash 2,030
C. Accounts Receivable 2,030
Notes Receivable 2,030
D. Cash 2,030
Interest Revenue 30
Notes Receivable 2,000

74. A note receivable dated May 23 and due in 90 days would be due on
A. August 20.
B. August 21.
C. August 23.
D. August 22.

75. The interest on a three-month, 12 percent, $16,200 note receivable is

A. $486.
B. $162.
C. $324.
D. $1,944.

76. The maturity value of a 60-day, 9 percent, $4,000 note receivable is

A. $3,940.66.
B. $3,641.78.
C. $4,059.18
D. $4,360.24.

77. Interest on a 180-day, 10 percent, $10,000 note receivable is

A. $5,001.54.
B. $576.76.
C. $493.15.
D. $2001.26.
78. Interest on a note receivable may be calculated without knowledge of the
A. principal amount.
B. rate of interest.
C. note's maturity date.
D. note's duration.

79. A promissory note is executed in June. When the note is paid the following January, the payee's entry
includes (assuming a calendar-year accounting period and no reversing entries) a
A. debit to Interest Income.
B. credit to Cash.
C. credit to Interest Receivable.
D. debit to Notes Receivable.

80. When a note is dishonored, the payee's journal entry includes a

A. debit to Accounts Receivable.
B. debit to Interest Expense.
C. debit to Notes Receivable.
D. debit to Interest Income.

81. Assume that the $2,000, 90-day, 8 percent note was received on August 31 and that the fiscal year ended on
September 30. The adjusting entry that would be made to record the interest receivable is (amounts rounded to
nearest dollar):
A. Interest Receivable 13
Interest Income 13
B. Notes Receivable 13
Interest Income 13
C. Accounts Receivable 39
Cash 39
D. Interest Income 39
Accounts Receivable 39

82. Assume that on November 1, a note which has a face value of $9,000, bears interest at 9 percent for 120
days, received from a customer as an extension of her past-due account is dishonored. The entry that would be
made to record the dishonor include all except
A. a debit to Accounts Receivable for $9,000.
B. a credit to Interest Income for $266.
C. a credit to Notes Receivable for $9,000.
D. a debit to Accounts Receivable for $9,266.
83. If the amount of uncollectible accounts expense is overstated at year end,
A. Allowance for Uncollectible Accounts will be understated.
B. net income will be overstated.
C. net Accounts Receivable will be understated.
D. total liabilities and stockholders' equity will be overstated.

84. A company's acceptance of credit cards like Visa is an example of

A. securitization.
B. factoring with recourse.
C. discounting.
D. factoring without recourse.

85. The sale or transfer of accounts receivable to raise funds is called

A. discounting.
B. collateralizing.
C. pledging.
D. factoring.

86. Which of the following topics involves a contingent liability?

A. Installment accounts receivable
B. A discounted note receivable
C. Securitization
D. Credit card sales

87. If the receivables turnover is 3.1 times, what is the days’ sales uncollected?
A. 10 days
B. 85 days
C. 118 days
D. cannot be determined with information given

88. If average accounts receivable is $35,000 and net sales total $100,000, what is the receivables turnover?
A. 0.3 times
B. 0.4 times
C. 2.9 times
D. 126 times
89. Which of the following statements is true about factoring without recourse?
A. The seller of the receivables is liable upon default of the debtor.
B. The factor's risk is lower than if the factoring were with recourse.
C. An example is the use of major credit cards.
D. The fee will be lower than if the factoring were with recourse.

90. If net sales total $50,000, beginning accounts receivable was $10,000, and ending accounts receivable is
16,000, what is the receivables turnover?
A. 1.9 times
B. 3.1 times
C. 3.8 times
D. 5 times

91. If net sales total $50,000, beginning accounts receivable was $10,000, and ending accounts receivable is
16,000, what is the days’ sales collected?
A. 73 days
B. 96 days
C. 118 days
D. 192 days

92. Which of the following statements is not true when FLK Company discounts a note receivable to the bank?
A. FLK may ultimately have to pay the bank when the note is due.
B. If the maker of the note pays the bank on time, no liability will result to FLK.
C. FLK will receive the maturity value from the bank.
D. A contingent liability arises for FLK.

93. Which of the following situations results in a contingent liability?

A. Making a credit card sale
B. Dishonoring a note
C. Estimating uncollectible accounts expense
D. Discounting a note

94. The receivables turnover is expressed in terms of

A. times.
B. days.
C. a percentage.
D. dollars.
95. Days' sales uncollected equals 365 days divided by
A. net sales.
B. average net accounts receivable.
C. net income.
D. the receivable turnover.

96. How is the account Allowance for Uncollectible Accounts presented in the financial statements, and what
purpose does this presentation serve?

Allowance for Uncollectible Accounts is presented in the asset section of the balance sheet as a contra account
to Accounts Receivable. It serves to reduce the receivables to the net amount ultimately expected to be realized.

97. Explain the two methods used to estimate uncollectible accounts.

One method analyzes the net credit sales of the current period and is referred to as the percentage of net sales
method. Because revenue from the current period only is being considered, the calculation results in an estimate
of the uncollectible accounts expense for that same period. This is an attempt to quantify the risk taken by
making sales on account in that period.

The second method is called the accounts receivable aging method. The accounts receivable are grouped
according to how long they have been open. A different percentage of uncollectibility is applied to each age
group and then all results are summed to arrive at an estimate of the amount of current receivables that will not
be collected. This becomes the new balance for the Allowance for Uncollectible Accounts account.

98. Why should a dishonored note receivable be transferred to an individual account receivable for the debtor?

The transfer accomplishes two things:

· It leaves only notes that are presumably collectible in the Notes Receivable account.
· It establishes a record showing that the customer dishonored a note receivable, which may be helpful in
deciding whether to extend credit to that customer in the future.

99. What is a contingent liability, and how does it relate to the discounting of a note receivable at the bank?

A contingent liability is a potential liability that may or may not become an actual liability. When a company
discounts a note receivable at the bank, the company is contingently liable to the bank upon default by the note's
maker.
100. What purpose is served by a factoring arrangement? What does it mean to factor accounts receivable with
recourse?

Factoring involves the sale or transfer of accounts receivable to a buyer for the purpose of obtaining cash prior
to customer payment. Factoring with recourse means that the seller of the accounts receivable is liable to the
purchaser upon default of the customer.

101. Match each description with the letter of the term to which it corresponds.

1. Grouping receivables in batches and selling them at

a discount discounting 5
2. Estimates bad debts as a percentage of net sales factoring 8
3. Recognizing a loss only when a specific account
receivable is determined to be uncollectible securitization 1
4. Shows how many times, on average, a company days’ sales
turned its receivables into cash during a period uncollected 6
5. Selling notes receivable to a bank receivables turnover 4
6. Shows how long it takes to collect accounts direct charge-off
receivable method 3
7. Estimates bad debts to be matched with the
revenues they helped to produce allowance method 7
8. Selling or transferring accounts receivable to percentage of net
another entity sales method 2

102. Sam’s Menswear has $11,600 in Accounts Receivable at December 31. Sam's accountant estimates that
$600 of the $11,600 will never be collected. Complete the current asset section of the balance sheet below.

Curre
nt
assets:
Cash $ 28,000
Short-term investments 8,000
Accounts receivable

Inventory 100,000
Total $ .
curren
t
assets
Curre
nt
assets
:
Cash $ 28,000
Short- 8,000
term
invest
ments
Acco $11,600
unts
receiv
able
Less allowance for uncollectible accounts 11,000

6
0
0
Invent 100,000
ory
Total $147,
curren 000
t
assets

103. A company has the following listed asset accounts. Determine the amount that should appear on the
balance sheet as the total current assets.

Cash $ 25,000
Short-Term Investments 10,000
Accounts Receivable 20,000
Allowance for Uncollectible Accounts 500
Inventory 100,000
Equipment 100,000
Land 75,000
Building 200,000

$154,500 ($25,000 + $10,000 + $20,000 - $500 + $100,000)

104. Use the following T account to answer the questions below (assume a calendar-year accounting period).

Allowance
for
Uncollectib
le
Accounts
1/10 600 1/15 600
5/12 880 12/31 7,200

What apparently occurred on:

a. January 10?
b. January 15?
c. May 12?
d. December 31?

a. Wrote off individual account.

b. Reinstated account written off on January 10.
c. Wrote off individual account.
d. Made year-end estimate for uncollectible account losses.

105. Using the following transactions for 2014, show how the T account below would appear after all
appropriate postings have been made. Assume an opening balance of $900.

Feb. 13 Wrote off an individual account for $1,000.

21 Reinstated the account written off on February 13.
July 8 Wrote off an individual account for $700.
Dec. 31 Made year-end adjustment of $800 for estimated uncollectible accounts.

Allowance
for
Uncollectib
le
Accounts
1/1 900
 Allowance
for
Uncollectib
le
Accounts
2/13 1,000 1/1 900
7/8 700 2/21 1,000
12/31 800
Bal. 1,000

106. On December 31, Ferndale Enterprises has an $800 debit balance in Allowance for Uncollectible
Accounts. If an accounts receivable aging method analysis indicated that an estimated $6,400 of December 31
receivables are uncollectible, for what amount would the adjusting entry for uncollectible accounts be recorded?
(Show your work.)

$7,200 ($6,400 + $800)

107. On December 31, Jameson Products has a $300 credit balance in Allowance for Uncollectible Accounts. It
estimates that 4 percent of the $60,000 in sales are uncollectible. After the appropriate adjusting entry for
uncollectible accounts has been made, what will be the balance in Allowance for Uncollectible Accounts using
the percentage of net sales method? Indicate if the balance is a debit or credit. (Show your work.)

$2,700 credit [($60,000 ´ 4/100) + $300]

108. At year end, MWE Graphics has a $700 debit balance in Allowance for Uncollectible Accounts. It
estimates that 5 percent of the $40,000 in sales are uncollectible. Give the amount that should be used in the
adjusting entry to record uncollectible accounts using the percentage of net sales method. (Show your
calculations.)

$2,000 credit to Allowance for Uncollectible Accounts ($40,000 ´ 0.05)

109. At year end, Korkin Design Company has a $900 credit balance in Allowance for Uncollectible Accounts.
If an accounts receiving aging method analysis indicates that an estimated $5,700 of year-end receivables are
uncollectible, what will be the balance in Allowance for Uncollectible Accounts after the appropriate adjusting
entry for uncollectible accounts has been made? Indicate if the balance is a debit or credit.

$5,700 credit
110. Assume that part of accounts and other receivables on Trejada Toys' balance sheet is $8 million as of
February 2, 2014. Also assume that Allowance for Uncollectible Accounts has a credit balance of $275,000,
that Trejada estimates its uncollectible accounts as 0.1 percent of net sales, and the amount of sales is
$5,509,500,000. Record the adjusting entry to recognize uncollectible accounts using the percentage of net sales
method.

GENER
AL
JOURN
AL
Post.
Date Descri Ref. Debit Credit
ption

GENERA
L
JOURNAL
Post.
Date Desc Ref. Debit Credit
ripti
on
2014
Feb. 2 5,509,50
Unco 0
llecti
ble
Acco
unts
Expe
nse
Allowance for Uncollectible Accounts 5,509,500
111. Assume that part of accounts and other receivables on Trejada’s Toys' balance sheet is $8 million and that
Thompson estimates its uncollectible accounts as 1 percent of accounts receivable not yet due, 2 percent of
accounts receivable between 1 and 60 days past due, and 10 percent of accounts receivable over 60 days past
due. Determine the amount of Trejada’s adjusting entry to recognize uncollectible accounts using the accounts
receivable aging method, based on the following information:

Accounts receivable not yet due $300,000

Accounts receivable 1 - 60 days past due 100,000
Accounts receivable over 60 days past due 50,000

Accounts receivable not yet due $300,000 ´ 0.01 = $ 3,000

Accounts receivable 1–60 days past due 100,000 ´ 0.02 = 2,000
Accounts receivable over 60 days past due 50,000 ´ 0.10 = 5,000
Allowance for uncollectible accounts $10,000

112. The general ledger account for Accounts Receivable shows a debit balance of $40,000. The Allowance for
Uncollectible Accounts has a credit balance of $2,000. Net sales for the year were $250,000. In the past, 3
percent of net sales have proved uncollectible. An aging of accounts receivable accounts results in an estimate
of $9,000 of uncollectible accounts receivable. Calculate (1) Uncollectible Accounts Expense and (2) the ending
balance of the Allowance for Uncollectible Accounts using (a) the percentage of net sales method and (b) the
accounts receivable aging method for both (1) and (2).

1. (a) $7,500 ($250,000 ´ 3/100)

(b) $7,000 ($9,000 – $2,000)
2. (a) $9,500 ($7,500 + $2,000)
(b) $9,000 (given)
113. Chao Corporation uses the accounts receivable aging method to account for Uncollectible Accounts
Expense. As of December 31, Chao's accountant prepared the following data about ending receivables: $40,000
was not yet due (1 percent expected not to be collected), $20,000 was 1-60 days past due (4 percent expected
not to be collected), and $4,000 was over 60 days past due (8 percent expected not to be collected). At
December 31, Allowance for Uncollectible Accounts had a credit balance prior to adjustment of $400. In the
journal provided, prepare Chao's end-of-period adjustment for estimated uncollectible accounts. Also prepare
the entry that would have been made had the credit balance instead been a debit balance.

GENER
AL
JOURN
AL
Post.
Date Descri Ref. D Credit
ption e
b
it
GENER
AL
JOURN
AL
Post.
Date Desc Ref. Deb Credit
riptio it
n
Dec. 31 1,120
Unco
llecti
ble
Acco
unts
Expe
nse
Allo 1,120
wan
ce
for
Unc
olle
ctibl
e
Acc
ount
s
Entr
y
assu
min
g
$40
0
cred
it
bala
nce.
[($4
0,00
0´
0.01
)+
($2
0,00
0´
0.04
)+
($4,
000
´
0.08
)] –
$40
0

31 1,920
Unco
llecti
ble
Acco
unts
Expe
nse
Allo 1,920
wan
ce
for
Unc
olle
ctibl
e
Acc
ount
s
Entr
y
assu
min
g
$40
0
debi
t
bala
nce.
[($4
0,00
0´
0.01
)+
($2
0,00
0´
0.04
)+
($4,
000
´
0.08
)] +
$40
0
114. Assuming that the allowance method is being used, prepare journal entries to record the following
transactions. Omit explanations.

Mar. 15 Sold merchandise to Foster for $12,000 on account.

Apr. 15 Received $6,000 from Foster.
Aug. 15 Wrote off Foster's account as uncollectible.
Nov. 15 Unexpectedly received payment in full from Foster.

GENERA
L
JOURNA
L
Post.
Date Descri Ref. D Credit
ption e
b
it
GENERA
L
JOURNA
L
Post.
Date Descri Ref. Debit Credit
ption
Mar. 15 12,000
Accou
nts
Receiv
able
Sales 12,000

Apr. 15 Cash 6,000

Accounts Receivable 6,000

Aug. 15 6,000
Allowa
nce for
Uncoll
ectible
Accou
nts
Accounts Receivable 6,000

Nov. 15 6,000
Accou
nts
Receiv
able
Allowance for Uncollectible Accounts 6,000

15 Cash 6,000
Accounts Receivable 6,000

115. In the journal provided, prepare the entries for the following transactions. (Omit explanations.)

Dec. 1 Sold merchandise on account to Wilma Phillips for $300.

12 Received payment of $200 from Wilma Phillips.
31 Made adjusting entry for Uncollectible Accounts Expense, using the percentage of net sales method. Net sales for the year
totaled $28,000, uncollectible accounts are estimated at 2 percent, and Allowance for Uncollectible Accounts has a $100
credit balance prior to adjustment.
Feb. 5 Wrote off Wilma Phillip's balance because she filed for bankruptcy.
17 Unexpectedly received the $100 from Wilma Phillips.
GENER
AL
JOURN
AL
Post.
Date Descri Ref. D Credit
ption e
b
it
GENER
AL
JOURN
AL
Post.
Date Descri Ref. Debit Credit
ption
Dec. 1 300
Accou
nts
Receiv
able/W
ilma
Phillip
s
Sales 300

12 Cash 200
Accounts Receivable/Wilma Phillips 200

31 560
Uncoll
ectible
Accou
nts
Expens
e
Allowance for Uncollectible Accounts 560

Feb. 5 100
Allowa
nce for
Uncoll
ectible
Accou
nts
Accounts Receivable/Wilma Phillips 100

17 100
Accou
nts
Receiv
able/W
ilma
Phillip
s
Allowance for Uncollectible Accounts 100

17 Cash 100
Accounts Receivable/Wilma Phillips 100
116. Assume that part of accounts and other receivables on Trejada’s Toys' February 2, 2014, balance sheet is
comprised of $43,225,000 of notes receivable. Two notes make up the amount. The first note has a face value of
$30,000,000 and bears interest at 7 percent for 90 days. The second note has a face value of $13,225,000 and
bears interest at 9 percent for 120 days. Record the journal entry for the collection of the 7 percent note on May
3 and the dishonor of the 9 percent note on June 2. (Omit explanations; assume no interest had been accrued;
amounts rounded to nearest dollar.)

GENERAL
JOURNAL
Pos
Date Desc t. D Credit
riptio Ref. e
n b
it

GENERA
L
JOURNA
L
Post.
Date Descri Ref. Debit Credit
ption
May 3 Cash 30,517,808
Notes Receivable 30,000,000
Interest Income 517,808

June 2 13,616,315
Accou
nts
Receiv
able
Notes Receivable 13,225,000
Interest Income 391,315

117. In the journal provided, prepare entries for the following (assume a calendar-year accounting period). Omit
explanations.

Dec. 1 Received a three-month, 15 percent note receivable for $7,840 from a customer as an extension of her past-due account.
31 Made the year-end adjustment for accrued interest.
Mar. 1 Received full payment on the note.
GENER
AL
JOURN
AL
Pos
Date Descri t. Deb Credit
ption Ref. it
GENER
AL
JOURN
AL
Post.
Date Descri Ref. D Credit
ption e
b
it
Dec. 1 Notes 7,840
Receiv
able
A 7,840
c
c
o
u
n
ts
R
e
c
e
i
v
a
b
l
e

31 98
Interes
t
Receiv
able
I 98
n
t
e
r
e
st
I
n
c
o
m
e
(
$
7
,
8
4
0
´
0
.
1
5
´
1
/
1
2
)
Mar. 1 Cash 8,134
N 7,840
o
t
e
s
R
e
c
e
i
v
a
b
l
e
I 98
n
t
e
r
e
st
R
e
c
e
i
v
a
b
l
e
I 196
n
t
e
r
e
st
I
n
c
o
m
e
(
$
7
,
8
4
0
´
0
.
1
5
´
2
/
1
2
)
118. Determine the interest on the following notes payable:

a. $6,000 at 10 percent for 60 days

b. $600 at 16 percent for 4 months
c. $10,000 at 12 percent for 45 days
d. $900 at 14 percent for 30 days

a. $98.63 ($6,000 ´ 0.10 ´ 60/365)

b. $32.00 ($600 ´ 0.16 ´ 4/12)
c. $147.95 ($10,000 ´ 0.12 ´ 45/365)
d. $10.36 ($900 ´ 0.14 ´ 30/365)

119. Brashear Corporation engaged in the following transactions involving promissory notes in 2014 and 2015.
Journalize these transactions in the journal provided. (Omit explanations.) Round to nearest whole dollar.

2014
Sept. 1 Sold land to Wayne Petry for $30,000. A six-month, 10 percent note was received in exchange (no gain or loss realized).
Nov. 1 Received a 30-day, 12 percent note receivable from Pat Lawhorn in settlement of her accounts receivable of $500.
Dec. 1 Pat Lawhorn dishonored her note issued 30 days earlier. Round computations to nearest whole dollar.
31 Recorded accrued interest on the note received on September 1.

2015
Mar. 1 Received payment in full from Wayne Petry.

GENERA
L
JOURNA
L
Post.
Date Descri Ref. Debit Credit
ption
GENERA
L
JOURNA
L
Post.
Date Descri Ref. Debit Credit
ption
2014
Sept. 1 Notes 30,000
Receiv
able
Land 30,000

Nov. 1 Notes 500

Receiv
able
Accounts Receivable/Pat Lawhorn 500

Dec. 1 505
Accou
nts
Receiv
able/P
at
Lawho
rn
Notes Receivable 500
Interest Income 5

31 1,000
Interes
t
Receiv
able
Interest Income 1,000

2015
Mar. 1 Cash 31,500
Notes Receivable 30,000
Interest Receivable 1,000
Interest Income 500

120. The following data exist for Weaver Company:

2014 2013
Accounts receivable $ 160,000 $180,000
Sales 1,066,000 821,000

Calculate the receivables turnover and the average days' sales uncollected for 2014. (Round to 1 decimal point and even days, respectively.)

Receivable turnover = $1,066,000  [($160,000 + $180,000)  2] = 6.3 times

Average days' sales uncollected = 365  6.3 = 58 days

Financial and Managerial Accounting 10th Edition Needles Test Bank

121. The following data exist for Sexton Company:

2014 2013
Accounts receivable $ 130,000 $110,000
Sales 855,000 795,000

Calculate the receivables turnover and the average days' sales uncollected for 2014. (Round to 1 decimal point and even days, respectively.)

Receivable turnover = $855,000  [($130,000 + $110,000)  2] = 7.1 times

Average days' sales uncollected = 365  7.1 = 51 days

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