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Exam 7: Accounting for Receivables

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Question 31

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The net realizable value of accounts receivable decreases when an account receivable is written off.

A) True
B) False

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Question 32

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The following information is available for Kettler Company, which uses the allowance method of accounting for uncollectible accounts. Kettler estimated that 1% of sales on account will be uncollectible. After several attempts at collection, Kettler wrote off an account of $440 that could not be collected. Required: Prepare journal entries for the following events: a) 2013 service revenue b) 2013 collections on account c) Write-off of the uncollectible account d) Uncollectible accounts expense for 2013

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Question 33

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Pace Co. uses the allowance method to account for uncollectible accounts expense. On June 20, 2013, Pace wrote-off an uncollectible account in the amount of $8,000. Show the effect of this entry.

On March 1, 2013, Kramer Co. collected a note receivable and related interest from Houston Co. The note had been issued one year earlier. Interest has been appropriately accrued on 12/31/13. Indicate the effects of this event on the elements of Kramer's financial statements.

On January 1, 2013, Barksdale Company had a balance in Accounts Receivable of $45,000 and a balance in the Allowance for Doubtful Accounts account of $1,200. During 2013 Barksdale had credit sales of $122,000 and ended the year with a balance in Accounts Receivable of $24,000. During 2013 Barksdale also wrote off $550 of receivables. Barksdale uses the allowance method for uncollectible accounts and assumes that 2% of the sales on account will not be collected. Required: a) After adjusting entries on 12/31/13, what will be the balance in the Allowance for Doubtful Accounts? b) By what amount did net realizable value of accounts receivable decrease in 2013 due to the write-off of the receivable? c) What amount of cash was collected from customers during 2013?

The average number of days to collect accounts receivable is computed by dividing:

Explain the computation of the length of the operating cycle.

The operating cycle is the length of time that a company spends acquiring inventory to sell.

On January 1, 2013, the Accounts Receivable balance was $18,500 and the balance in the Allowance for Doubtful Accounts was $1,400. On January 15, 2013 a $400 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

Vance Company accepted a 12-month, 7% promissory note from a customer, Adams Company, on September 1, 2013, in exchange for $12,000 of services that Vance performed. Prepare general journal entries for the following: a) acceptance of the note on September 1, 2013 b) accrual of interest on December 31, 2013 c) collection of principal and interest on August 31, 2014

A company that uses the allowance method to account for uncollectible accounts

The best estimate for the amount of cash a company expects to collect from its accounts receivable is the face value of the receivables.

How is the accounts receivable turnover computed? What information does this ratio provide?

Indicate whether each of the following statements is true or false assuming use of the allowance method of accounting for uncollectible accounts. _____ a) The Allowance for Doubtful Accounts is an expense account. _____ b) The net realizable value of receivables is the difference between the ending balance of accounts receivable and the ending balance in the allowance for doubtful accounts. _____ c) The recognition of uncollectible accounts expense at the end of an accounting period does not affect the net realizable value of accounts receivable. _____ d) The write-off of an uncollectible account does not affect the net realizable value of accounts receivable. _____ e) The write-off of an uncollectible account does not affect the amount of a company's equity.

If Kane Company loans $6,000 to Bowen Company on March 1, 2013, and the one-year note carries an interest rate of 7%, how much interest revenue will Kane recognize in 2013? How much in 2014?

Other things being equal, the longer a company's operating cycle, the higher its operating costs are likely to be.

Which accounting concept can be used by some companies to justify the use of the direct write-off method of accounting for uncollectible accounts?

The longer an account receivable has been outstanding, the less likely it is to be collected.

The percent of revenue method for estimating uncollectible accounts expense is considered superior to the percent of receivables method because it is more conservative.

In the first year of operations, 2013, Randy's Repair Service recognized $240,000 of service revenue on account. The ending accounts receivable balance was $44,000. Randy estimates that 2% of sales on account will not be collected. During the year, Randy wrote off a $100 receivable that was determined to be uncollectible. Assume there were no other transactions affecting accounts receivable. Required: a) What amount of cash was collected in 2013? b) What amount of uncollectible accounts expense was recognized in 2013? c) What will be Randy's net realizable value of receivables on the December 31, 2013 balance sheet?