Question 1

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:

Accepted Answer

The adjusting entry for estimated uncollectible accounts would decrease the amount of accounts receivable and recognize the expense of uncollectible accounts. According to the question, the estimated uncollectible amount is $6,000. Therefore, the correct answer is (C) Uncollectible Accounts Expense 6,000 Allowance for Uncollectible Accounts 6,000. This would result in an increase in the allowance for uncollectible accounts on the balance sheet and an expense on the income statement. Option (B) would be incorrect because it overestimates the allowance for uncollectible accounts. Option (D) would increase the allowance for uncollectible accounts but it would also decrease accounts receivable by the same amount, which is not accurate since the estimated uncollectible accounts amount is only $6,000. Option (A) only records the expense of uncollectible accounts and does not account for the estimated amount in the allowance for uncollectible accounts.

Question 2

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

Accepted Answer

Using the simple interest formula:

Interest = Principal x Rate x Time
Interest = $4,000 x 0.09 x 60/360 (since 60 days is 1/6th of a year)
Interest = $60

Maturity value = Principal + Interest
Maturity value = $4,000 + $60
Maturity value = $4,060

Therefore, the correct choice is C) $4,059.18 (since the answer is rounded to the nearest cent).

Question 3

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

Accepted Answer

The answer of The general ledger account for Accounts Receivable...

Question 4

Interest on a note receivable may be calculated without knowledge of the

Accepted Answer

Interest on a note receivable requires knowledge of the principal amount, the rate of interest, and the note's duration to calculate. The note's maturity date is not directly required for calculating interest, as the interest calculation depends on the duration (how long the interest is accruing for), not the specific end date.

Question 5

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:

Accepted Answer

The correct entry to write off an account when a customer is declared bankrupt is to debit the Allowance for Uncollectible Accounts and credit Accounts Receivable/Customer Account.

Question 6

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

Accepted Answer

The accounts receivable aging method focuses on the estimated uncollectible accounts receivable, which is $20,000 in this scenario. This method adjusts the Allowance for Uncollectible Accounts to reflect this estimate directly, regardless of the current balance in the allowance account. Therefore, the adjusted balance in the Allowance for Uncollectible Accounts would be $20,000.

Question 7

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

Accepted Answer

The formula to calculate interest is:

Interest = Principal x Rate x Time

Where:

Principal = $10,000 
Rate = 10% = 0.10 
Time = 180 days / 360 days (since the interest is for half a year, or 180 days, and the year has 360 days) = 0.5

Using the formula:

Interest = $10,000 x 0.10 x 0.5 = $500

Therefore, the interest on the note receivable is $500.

Option C is the closest answer to $500.

Question 8

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

Accepted Answer

Understating the amount of uncollectible accounts expense leads to an understatement of the Allowance for Uncollectible Accounts, as this allowance directly reflects the estimated uncollectible portion of accounts receivable.

Question 9

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?

Accepted Answer

The percentage of net sales method estimates the amount of uncollectible accounts based on a percentage of net sales.

3% of $50,000 = $1,500

Since the allowance account currently has a credit balance of $2,500, we need to subtract $1,500 from it to get the balance after the adjustment:

$2,500 - $1,500 = $1,000

However, since the original balance in the allowance account was a credit, the adjustment needs to be added as a credit as well:

$1,000 + $3,000 = $4,000

Therefore, the balance in the allowance account after the adjustment using the percentage of net sales method is a credit balance of $4,000, which is choice C.

Question 10

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?

Accepted Answer

The adjustment should be $1,100. This is because the existing debit balance of $200 in the Allowance for Uncollectible Accounts needs to be offset to reach a credit balance of $900, which is the new estimate for uncollectible accounts. The adjustment increases the allowance by $1,100 to achieve the desired credit balance.

Question 11

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:

Accepted Answer

The answer of Assume that on October 1,a note which...

Question 12

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

Accepted Answer

When using the allowance method, we estimate the amount of accounts that will become uncollectible and set aside an allowance for them. Therefore, when we receive notice that a customer has gone bankrupt, we will debit the allowance for uncollectible accounts (reducing the balance) and credit accounts receivable (reducing the amount due from the bankrupt customer). So, option D is the correct answer. Option A would be the entry made at the time of creating the allowance for uncollectible accounts, not when a specific customer goes bankrupt. Option B is incorrect because we don't debit the allowance for uncollectible accounts when estimating the amount, we credit it. Finally, option C is also incorrect because we don't debit the allowance for uncollectible accounts when a customer goes bankrupt.

Question 13

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

Accepted Answer

The payee's entry would include a credit to Interest Receivable to recognize the interest income that was accrued in the previous accounting period.

Question 14

A note receivable dated May 23 and due in 90 days would be due on

Accepted Answer

May 23 + 90 days = August 21. Therefore, the note receivable would be due on August 21.

Question 15

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

Accepted Answer

The Allowance for Uncollectible Accounts is a contra account to Accounts Receivable. It is used to record and estimate the amount of accounts receivable that are not expected to be collected. This contra account reduces the overall balance of Accounts Receivable, and is reported on the balance sheet as a deduction from the total amount of Accounts Receivable.

Question 16

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

Accepted Answer

The interest can be calculated using the formula: Interest = Principal × Rate × Time. Here, Principal = $16,200, Rate = 12% (or 0.12 as a decimal), and Time = 3 months (or 3/12 of a year). So, Interest = $16,200 × 0.12 × (3/12) = $486.

Question 17

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

Accepted Answer

Using the percentage of net sales method, we calculate the estimated uncollectible accounts as follows:
3% of $500,000 net sales = $15,000
So, the total estimated uncollectible accounts are $15,000 + $20,000 (from aging of accounts receivable) = $35,000.

To adjust the allowance for uncollectible accounts, we need to increase the credit balance by $32,000 ($35,000 - $3,000 current credit balance). Therefore, the adjusted balance for the Allowance for Uncollectible Accounts would be $18,000 ($15,000 + $3,000).

Thus, the best choice is (C) $18,000.

Question 18

Under the allowance method,Uncollectible Accounts Expense is recorded

Accepted Answer

Under the allowance method, Uncollectible Accounts Expense is recorded for an estimated amount. This estimated amount is based on historical data, industry norms, and other relevant factors. The purpose of recording the expense is to recognize the potential of losing money due to uncollectible accounts and to match this expense with the revenue generated in the same period. The actual amount of uncollectible accounts may differ from the estimated amount, requiring adjustments to be made at the end of the accounting period.

Question 19

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

Accepted Answer

When a note is dishonored, the payee's journal entry should include a debit to Accounts Receivable. This is because the payee will no longer be receiving payment from the debtor, and the amount owed becomes an account that the debtor must pay.

Question 20

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:

Accepted Answer

The accounts receivable aging method estimates the amount of uncollectible accounts based on the age of the accounts receivable. In this case, the aging estimate is $20,000. To adjust the allowance for uncollectible accounts to this estimate, we need to calculate the current balance of the allowance for uncollectible accounts.

Beginning balance of the allowance for uncollectible accounts: $3,000
Add: Estimated uncollectible accounts from aging analysis: $20,000
Less: Current balance needed: $16,000 ($50,000 x 3%)

Therefore, the amount of adjustment to the allowance for uncollectible accounts is $13,000 ($16,000 - $3,000). This means that the entry to record Uncollectible Accounts Expense would be:

Uncollectible Accounts Expense $17,000
Allowance for Uncollectible Accounts $17,000

Option B is the correct answer.

Quiz 9: Receivables