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Exam 7: Accounting for Receivables

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Question 51

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On January 1, Year 2 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account.What is the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows?

A) $97,000
B) $104,000
C) $89,520
D) $95,060

E) A) and B)
F) C) and D)

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Question 52

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Willis Company had $200,000 in credit sales for Year 1, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $38,000. Willis had never used the allowance method to account for its receivables until Year 1. The net realizable value of its accounts receivable at the end of the year was $34,000.

A) True
B) False

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Question 53

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Old Dominion Antiques Shop reported the following income statement and balance sheet for Year 1: During Year 1, the company's inventory turnover was 3.76 times and its average number of days to days to sell inventory was 97.1 days.Required:Determine the accounts receivable turnover ratio and the average number of days to collect accounts receivable.Determine the length of the operating cycle.

On October 1, Year 1 Hernandez Company loaned $60,000 cash to Acosta Company. The one-year note carried a 6% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will affect Hernandez's financial statements?

Which of the following reflects the effect of the year-end adjustment to record estimated uncollectible accounts expense using the allowance method?

Collecting a credit card receivable is an asset source transaction.

If Kettler Company loans $24,000 to Beam Company on March 1, Year 1, and the one-year note carries an interest rate of 7%, how much interest revenue will Kettler recognize in Year 1? How much interest revenue will Kettler recognize in Year 2?

Which of the following is not an accurate description of the Allowance for Doubtful Accounts?

Barron Company accepts a credit card as payment for $2,400 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

If a company uses the percent of receivables method to estimate uncollectible accounts, the company will first determine the required ending balance in Allowance for Doubtful Accounts; the Uncollectible Accounts Expense will be the difference between that amount and the balance in the Allowance for Doubtful Accounts.

Discuss briefly the costs of making sales on account.

In the first year of operation, Ralph's Repair Service recognized $480,000 of service revenue on account. The ending accounts receivable balance was $88,000. Ralph estimates that 2% of sales on account will not be collected. During Year 1, Ralph wrote off a $200 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 Year 1?b)What amount of uncollectible accounts expense was recognized in Year 1?c)What is the net realizable value of accounts receivable that will be reported on the balance sheet as of December 31, Year 1?

The adjustment to recognize uncollectible accounts expense does not affect the net realizable value of receivables.

Vancouver Company began Year 2 with balances in accounts receivable and allowance for doubtful accounts of $92,800 and $9,280, respectively. The company reported credit sales of $875,550 during the year, collected $870,200, and wrote off $6,800 of uncollectible accounts. Vancouver estimates that 10% of its accounts receivable balance will be uncollectible.Required:What will Vancouver report as its allowance for doubtful accounts on December 31, Year 2?Compute uncollectible accounts expense for Year 2.Calculate Vancouver's net realizable value of accounts receivable on December 31, Year 2.

The Griffin Corporation accepted a credit card for a sale of $3,000 on December 16, Year 1. The credit card company charges a fee of 4%. On January 5, Year 2, Griffin received payment from the credit card company. Indicate whether each of the following statements is true or false. a)Griffin should record $2,880 of revenue in Year 1 when the sale is made.b)Griffin should increase the balance of the accounts receivable by $3,000 on December 16, Year 1.c)The sale has no impact on the statement of cash flows in Year 1.d)The collection of cash increases total assets in Year 2.e)The December 16 transaction increases total revenues and total expenses on the Year 1 income statement.

The following information is taken from the adjusted trial balance of the Studio Art Supply Company at the end of Year 1: Required:Compute the accounts receivable turnover.Compute the average number of days to collect accounts receivable.

On January 1, Year 2 Grande Company had a $19,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $74,000 of service on account. The company collected $70,500 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account.What is the amount of uncollectible accounts expense recognized on the Year 2 income statement?

How do the percent of revenue method and the percent of receivables method to estimate uncollectible accounts expense differ?

The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.What is the net realizable value of Miller's receivables at the end of Year 1?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA On September 1, Year 1, Diaz Company loaned $10,000 to Ace Company. Show the effect of this transaction on Diaz's financial statements.