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Exam 7: Reporting and Analyzing Receivables

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Question 61

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The ________________________ methods use balance sheet relationships to estimate bad debts - mainly the relation between accounts receivable and the allowance amount.

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Question 62

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A company that uses the allowance method to account for its bad debts had credit sales of $740,000 in 2010,including a $720 sale to Linda Paul.On December 31,2010,the company estimated its bad debts at 1.5% of its credit sales.On June 1,2011,the company wrote off as uncollectible the $720 account of Linda Paul; and on December 21,2008 Linda Paul unexpectedly paid her account in full.Prepare the necessary journal entries (a)on December 31,2010,to reflect the estimate of bad debts expense; (b)on June 1,2011,to write off the bad debt; and (c)on December 21,2011,to record the unexpected collection.

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Question 63

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The following information is from the annual financial statements of Nancy Company. $\begin{array} { l r r r } & 2010 & 2009 & 2008 \\\text { Net Sales } & \$ 3 0 7 , 0 0 0 & \$ 2 3 8 , 0 0 0& \$ 2 8 5 , 0 0 0 \\\text { Accounts Receivable, net (year-end) } & 47,900 & 45,700 & 42,400\end{array}$ What is the accounts receivable turnover ratio for 2009?

The ________________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before).

Match each definition to its term

ABC Co.sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring fee.Prepare the journal entry for ABC Co.to record the sale.

The Connecting Company uses the percent of sales method of accounting for uncollectible accounts receivable.During the current year,the following transactions occurred: $\begin{array}{|l|l|}\hline\text { Sept. } 7 & \begin{array}{l}\text { Connecting Company determined that the } \$ 8,100 \text { account receivable of the Helena } \\\text { Company was uncollectible, and wrote it off. }\end{array} \\\hline \text { Oct. 15 } & \begin{array}{l}\text { Connecting Company determined that the } \$ 2,500 \text { account receivable of the Tree } \\\text { Company was uncollectible and wrote it off. }\end{array}\\\hline \text { Nov. 9 } & \begin{array}{l}\text { Helena Company paid } \$ 6,000 \text { of the amount owed to the Connecting Company. } \\\text { Connecting Company does not expect further collections from the Helena } \\\text { Company. }\end{array} \\\hline \text { Dec. 31 } & \begin{array}{l}\text { Connecting Company estimates that 0.5\% of its } \$ 1,900,000 \text { of credit sales would be } \\\text { uncollectible. }\end{array}\\\hline\end{array}$ 1.Prepare the general journal entries to record these transactions. If the balance of the allowance for uncollectible accounts was an $8,000 credit on January 1 of the current year,determine the balance of the allowance for doubtful accounts at December 31 of the current year.Assume that the transactions above are the only transactions affecting the allowance for doubtful accounts during the year.

A company has the following unadjusted account balances at December 31,of the current year: Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance).This company uses the aging of accounts receivable to estimate its bad debts.The following aging schedule reflects its accounts receivable at the current year-end: $\begin{array}{|l|r|r|}\hline && \text {Estimated}\\&& \text {Uncollectible}\\\hline \text { Account Age}& \text { Balance }& \text { Percentage }\\\hline \text { Current (not yet due) } & \$ 96,000 & 1.0 \% \\\hline 1-30 \text { days past due } & 64,000 & 3.5 \\\hline 31-60 \text { days past due } & 16,000 & 12.0 \\\hline 61-90 & 6,500 & 42.0 \\\hline \text { Over } 90 \text { days past due } & 3,200 & 67.0\\\hline \text { Total } & \$ 185,700 \\\hline\end{array}$ 1.Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31,of the current year,balance sheet. 2.Prepare the adjusting journal entry to record bad debts expense for the current year.

The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account.

The person who signs a note receivable and promises to pay the principal and interest is the:

The _________________________ method uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when the company determines it to be uncollectible.

What is the accounts receivable turnover ratio? How is it calculated? How is it used to assess financial condition?

Companies follow both the matching principle and the materiality principle when applying the direct write-off method.

Companies use two methods to account for uncollectible accounts: the direct write-off method and the allowance method.

Corona Company has credit sales of $4.60 million for year 2011.On December 31,2011,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,164.Corona prepares a schedule of its December 31,2011,accounts receivable by age.Based on past experience,it estimates the percent of receivables in each age category that will become uncollectible.This information is summarized here: $\begin{array} { | c l c | } \begin{array} { c } \text { December 31, 2011 } \\\text { Accounts Receivable }\end{array} & { \begin{array} { c } \text { Age of Accounts } \\\text { Receivable }\end{array} } & \begin{array} { c } \text { Expected Percent } \\\text { Uncollectible }\end{array} \\\hline \$ 20,000 & \text { Not yet due } & 1.05 \% \\252,000 & \text { 1 to 30 days past due } & 1.80 \\49,600 & \text { 31 to 60 days past due } & 6.30 \\14,100 & \text { 61 to 90 days past due } & 31.75 \\2,850 & \text { Over 90 days past due } & 66.00\end{array}$ Assuming the company used the aging of accounts receivable method,determine the amount that should be recorded for Bad Debt Expense on December 31,2011.

The interest accrued on $3,600 at 7% for 60 days is:

Cairo Co.uses the allowance method of accounting for uncollectible accounts.Cairo Co.accepted a $5,000,12%,90-day note dated May 16,from Alexandria Co.as in exchange for its past-due account receivable.Make the necessary general journal entries for Cairo Co.on May 16 and the August 14 maturity date,assuming that the: a. Note is held until maturity and collected in full at that time b. Note is dishonored; the amount of the note and its interest are written off as uncollectible

The amount of bad debt expense can be estimated by:

Temper Company has credit sales of $3.10 million for year 2010.Temper estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2010,the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575.Temper prepares a schedule of its December 31,2010,accounts receivable by age.Based on past experience,it estimates the percent of receivables in each age category that will become uncollectible.This information is summarized here: $\begin{array} {c l c} \begin{array} { c } \text { December 31,2010 } \\\text { Accounts Receivable }\end{array} & { \begin{array} { c } \text { Age of Accounts } \\\text { Receivable }\end{array} } & \begin{array} { c } \text { Expected Percent } \\\text { Uncollectible }\end{array} \\\hline 620,000 & \text { Not yet due } & 1.05 \% \\248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \\49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \\24,800 & \text { 61 to } 90 \text { days past due } & 31.75 \\4,960 & \text { Over } 90 \text { days past due } & 66.00\end{array}$ Assuming the company uses the percent of accounts receivable method,what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?