Accounting for Receivables Answer Key Part 4

8 - 32 178. The face value of a note refers to the amount a. that can be received if sold to a factor. b. borrowed plus interest received at maturity from the maker. c. that is identified on the formal instrument of credit. d. remaining after a service charge has been deducted. Ans: C 179. Parks Company receives a $25,000, 3-month, 8% promissory note from Todd Company in settlement of an open accounts receivable. What entry will Parks Company make upon receiving the note? a. Notes Receivable........................................................... Accounts Receivable—Todd Company................. 25,500 b. Notes Receivable........................................................... Accounts Receivable—Todd Company................. Interest Revenue................................................... 25,500 c. Notes Receivable........................................................... Interest Receivable................................................ Accounts Receivable—Todd Company................. Interest Revenue................................................... 25,000 500 d. Notes Receivable........................................................... Accounts Receivable—Todd Company................. 25,000 25,500 25,000 500 25,000 500 25,000 Ans: D 180. When a note is accepted to settle an open account, Notes Receivable is debited for the note's a. net realizable value. b. maturity value. c. face value. d. face value plus interest. Ans: C 181. Short-term notes receivable are reported at a. cash (net) realizable value. b. face value. c. gross realizable value. d. maturity value. Ans: A 182. Ans: C Short-term notes receivables a. have a related allowance account called Allowance for Doubtful Notes Receivable. b. are reported at their gross realizable value. c. use the same estimations and computations as accounts receivable to determine cash realizable value. d. present the same valuation problems as long-term notes receivables. 8 - 33 183. When a note receivable is dishonored, a. interest revenue is never recorded. b. bad debts expense is recorded. c. the maturity value of the note is written off. d. Accounts Receivable is debited if eventual collection is expected. Ans: D 184. Rodgers Company lends Lanier Company $80,000 on April 1, accepting a four-month, 9% interest note. Rodgers Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? a. Note Receivable ............................................................ 80,000 Cash ..................................................................... 80,000 b. Interest Receivable ....................................................... 600 Interest Revenue .................................................. 600 c. Cash ............................................................................. 600 Interest Revenue .................................................. 600 d. Interest Receivable ....................................................... 2,400 Interest Revenue .................................................. 2,400 Ans: B 185. When a note receivable is honored, Cash is debited for the note's a. net realizable value. b. maturity value. c. gross realizable value. d. face value. Ans: B 186. On June 17, 2020, Pear, Inc. writes a 60-day, 6%, $40,000 note to settle an open account with Solar Solutions. Assuming that Pear, Inc. pays the note in full on its due date and a 360 day year is used to calculate interest, how much cash will Solar Solutions record on its statement of financial position, and on what date will the cash be received? a. $42,400 on June 17, 2020. b. $40,400 on August 16, 2020. c. $42,400 on August 16, 2020. d. $40,400 on June 17, 2020. Ans: B 187. Ans: D Charlie Co. lends Caroline Green Inc. $30,000 on June 1, 2020, accepting a five-month, 9% interest-bearing note. Assuming the date Charlie's statement of financial position is September 30, 2020, what amounts will Charlie record related to this note? a. Charlie Co will not record anything related to the note since it matures on November 1, 2020. b. Charlie Co will record interest revenue of $2,700. c. Charlie Co will record interest revenue of $1,125 d. Charlie Co will record interest revenue of $900. 8 - 34 188. Which of the following statements is true concerning how derecognition of receivables is treated under IFRS and U.S. GAAP? a. U.S. GAAP permits partial derecognition; IFRS does not. b. The criteria used to derecognize a receivable under IFRS uses a combination of an approach focused on risks and rewards and loss of control. c. The criteria used to derecognize a receivable under U.S. GAAP uses risks and rewards as the primary criterion. d. All of these answer choices are correct. Ans: B 189. Which of the following statements is true regarding accounting for receivables under IFRS and U.S. GAAP? a. U.S. GAAP has four specifically defined categories for financial assets, which include loans and receivables. b. U.S. GAAP accounts for short-term receivables at amortized cost, adjusted for allowances for doubtful accounts, whereas IFRS requires fair value for receivables. c. In their current deliberations regarding accounting for financial instruments, it appears that IASB wants amortized costs for receivables, but GAAP is tending toward fair value. d. All of these answer choices are correct. Ans: C 190. Maloney Company had net credit sales during the year of ₤1,200,000 and cost of goods sold of ₤800,000. The balance in accounts receivable at the beginning of the year was ₤120,000, and the end of the year it was ₤180,000. What was the accounts receivable turnover? a. 5.0 b. 6.7 c. 8.0 d. 10.0 Ans: C 191. The average collection period for accounts receivable is computed by dividing 365 days by a. net credit sales. b. average accounts receivable. c. ending accounts receivable. d. accounts receivable turnover. Ans: D 192. Ans: D The financial statements of Hudson Manufacturing Company report net sales of $300,000 and accounts receivable of $50,000 and $30,000 at the beginning and end of the year, respectively. What is the accounts receivable turnover for Hudson? a. 3.8 times b. 6 times c. 10.0 times d. 7.5 times 8 - 35 193. The financial statements of Hudson Manufacturing Company report net sales of $360,000 and accounts receivable of $50,000 and $30,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? a. 81.1 b. 40.6 c. 30.4 d. 50.7 Ans: B 194. The financial statements of Gentry Manufacturing Company report net sales of €480,000 and accounts receivable of €80,000 and €40,000 at the beginning and end of the year, respectively. What is the accounts receivable turnover for Gentry? a. 8 times b. 12 times c. 6 times d. 4 times Ans: A 195. The financial statements of Gentry Manufacturing Company report net sales of €480,000 and accounts receivable of €80,000 and €40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? a. 33.4 times b. 60.8 times c. 45.6 times d. 30.4 times Ans: C 196. Which of the following are also called trade receivables? a. Accounts receivable b. Other receivables c. Advances to employees d. Income taxes refundable Ans: A 197. Ans: C On February 1, 2020, Janssen Company sells merchandise on account to Nicholson Company for $5,000. The entry to record this transaction by Janssen Company is a. Sales Revenue.................................................................... Accounts Payable......................................................... 5,000 b. Cash.................................................................................... Sales Revenue............................................................. 5,000 c. Accounts Receivable........................................................... Sales Revenue............................................................. 5,000 d. Notes Receivable................................................................. Accounts Receivable.................................................... 5,000 5,000 5,000 5,000 5,000 8 - 36 198. Writing off an uncollectible account under the allowance method requires a debit to a. Accounts Receivable. b. Allowance for Doubtful Accounts. c. Bad Debt Expense. d. Uncollectible Accounts Expense. Ans: B 199. When the allowance method of recognizing bad debts expense is used, the entry to recognize that expense a. increases net income. b. decreases current assets. c. has no effect on current assets. d. has no effect on net income. Ans: B 200. The direct write-off method a. is acceptable for financial reporting purposes. b. debits Allowance for Doubtful Accounts to record write-offs of accounts. c. shows only actual losses from uncollectible accounts receivable. d. estimates bad debt losses. Ans: C 201. Putnam Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $118,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is a. $118,000. b. $48,000. c. $188,000. d. $70,000. Ans: B 202. Ans: D In recording the sale of accounts receivable, the commission charged by a factor is recorded as a. Bad Debt Expense. b. Commission Expense. c. Loss on Sale of Receivables. d. Service Charge Expense. 8 - 37 203. Kessler Co., makes a credit card sale to a customer for $1,000. The credit card sale has a grace period of 30 days and then an interest charge of 1.5% per month is added to the balance. If the unpaid balance on the above sale is $600 at the end of the grace period, the interest charge is a. $15. b. $12. c. $6. d. $9. Ans: D 204. The interest rate specified on any note is for a a. day. b. month. c. week. d. year. Ans: D 205. On February 1, Platt Company received a €9,000, 10%, four-month note receivable. The cash to be received by Platt Company when the note becomes due is a. €300. b. €9,000. c. €9,300. d. €9,900. Ans: C 206. The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to a. Notes Receivable. b. Cash. c. Allowance for Doubtful Accounts. d. Accounts Receivable. Ans: D 207. Which of the following statements concerning receivables is incorrect? a. Receivables are often listed after short-term investments. b. Companies report bad debt expense as a selling expense. c. Both the gross amount of receivables and the allowance for doubtful accounts should be reported. d. Interest revenue is shown under other income and expense. Ans: A 208. Ans: B The accounts receivable turnover is computed by dividing a. total sales by average net accounts receivable. b. net credit sales by average net accounts receivable. c. total sales by ending net accounts receivable. d. net credit sales by ending net accounts receivable. 8 - 38 BRIEF EXERCISES Record the following transactions for Turnbull Company. 1. On August 4, Turnbull sold merchandise on account to Tabor Company for $750, terms 2/10, n/30. 2. On August 7, Turnbull granted Tabor a sales allowance and reduced the cost of the merchandise by $50 because some of the goods were slightly damaged. 3. On August 12, Tabor paid the account in full. Ans: N/A Solution 209 (6 min.) 1. Accounts Receivable........................................................................ Sales Revenue....................................................................... 750 2. Sales Returns and Allowances........................................................ Accounts Receivable.............................................................. 50 3. Sales Discounts............................................................................... Cash................................................................................................ Accounts Receivable.............................................................. 14 686 750 50 700 At December 31, 2019, Grayson Company reported Accounts Receivable of €38,000 and Allowance for Doubtful Accounts of €3,500. On January 7, 2020, Duffy Enterprises declares bankruptcy and it is determined that the receivable of €1,200 from Duffy is not collectible. 1. What is the cash realizable value of Accounts Receivable at December 31, 2019? 2. What entry would Grayson make to write off the Duffy account? 3. What is the cash realizable value of Accounts Receivable after the Duffy account is written off? Ans: N/A Solution 210 (5 min.) 1. Cash realizable value = €38,000 – €3,500 = €34,500 2. Allowance for Doubtful Accounts..................................................... Accounts Receivable—Duffy.................................................. 1,200 3. Cash realizable value = (€38,000 – €1,200) – (€3,500 – €1,200) = €34,500 1,200 8 - 39 BE 211 Longbine Company’s ledger at the end of the current year shows Accounts Receivable of $150,000. Instructions a. If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 4% of accounts receivable, journalize the adjusting entry for the end of the period. b. If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 4% of accounts receivable, journalize the adjusting entry for the end of the period. Ans: N/A Solution 211 (5 min.) (a) Bad Debts Expense....................................................................... 3,000 Allowance for Doubtful Accounts ($6,000 – $3,000)............. (To adjust the allowance account to total estimated uncollectible, $150,000 × .04 = $6,000) (b) Bad Debts Expense....................................................................... Allowance for Doubtful Accounts ($6,000 + $3,000)............ 3,000 9,000 9,000 BE 212 Patel Co. sells Christmas angels. Patel determines that at the end of December, it has the following aging schedule of Accounts Receivable: Customer Total DV Farmer $500 JJ Joysen 300 Not Yet Due 1–30 31–60 $300 250 JC Net 200 200 ? 300 % uncollectible Total Estimated Uncollectible Amounts 200 150 1% ? $200 100 NJ Bell Number of Days Past Due 61–90 Over 90 ? 300 5% ? 100 350 200 100 10% 20% 50% ? ? ? Compute the net receivables based on the above information at the end of December. (There was no beginning balance in the Allowance for Doubtful Accounts). Ans: N/A 8 - 40 Solution 212 (5 min.) Customer DV Farmer Total $ 500 JJ Joysen 300 NJ Bell 250 JC Net $300 200 150 200 200 300 1% $143 Number of Days Past Due 61–90 Over 90 $200 100 $1,250 % uncollectible Total Estimated Uncollectible Amounts Not Yet Due 1–30 31–60 $3 300 5% $15 100 350 200 100 10% 20% 50% $35 $40 $50 Net Receivables = ($1,250 – $143 = $1,107) BE 213 Rainey Company has the following accounts in its general ledger at July 31: Accounts Receivable $40,000 and Allowance for Doubtful Accounts $2,500. During August, the following transactions occurred. Oct. 15 25 Sold $12,000 of accounts receivable to Good Factors, Inc. who assesses a 3% finance charge. Made sales of $700 on VISA credit cards. The credit card service charge is 2%. Instructions Journalize the transactions. Ans: N/A Solution 213 Oct. 15 25 (5 min.) Cash....................................................................................... Service Charge Expense ($12,000 × 3%) .............................. Accounts Receivable .................................................. 11,640 360 Cash....................................................................................... Service Charge Expense ($700 × 2%) ................................... Sales Revenue............................................................ 686 14 12,000 700 Accounting for Receivables 8 - 41 BE 214 Determine the interest on the following notes: (a) ¥200,000 at 6% for 90 days. (b) ¥120,000 at 9% for 5 months. (c) ¥300,000 at 8% for 60 days (d) ¥240,000 at 7% for 6 months Ans: N/A Solution 214 (5 min.) (a) ¥3,000 (¥200,000 × .06 × 90/360) (b) ¥4,500 (¥120,000 × .09 × 5/12) (c) ¥4,000 (¥300,000 × .08 × 60/360) (d) ¥8,400 (¥240,000 × .07 × 6/12) BE 215 Flint Distributors has the following transactions related to notes receivable during the last two months of the year. Dec. 1 Loaned $18,000 cash to G. Kingsley on a 1-year, 6% note. 16 Sold goods to D. Jones, receiving a $4,800, 60-day, 7% note. 31 Accrued interest revenue on all notes receivable. Instructions Journalize the transactions for Flint Distributors. Ans: N/A Solution 215 Dec 1 Dec 16 Dec. 31 (6 min.) Notes Receivable— G. Kingsley.......................................... Cash........................................................................... (To record loan made to G. Kingsley) 18,000 Notes Receivable— D. Jones.............................................. Sales Revenue............................................................ (To record sale to D. Jones) 4,800 Interest Receivable.............................................................. Interest Revenue*....................................................... (To record accrued interest) 104 *Calculation of interest revenue Kingsley note:$18,000 × 6% × 30/360 = $ 90 Jones note: 4,800 × 7% × 15/360 = 14 Total accrued interest $104 18,000 4,800 104