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Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

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Question 61

Multiple Choice

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A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis.On a month in which the company does not receive any interest payments,interest is recorded with:

A) a debit to Cash of $525 and a credit to Interest Revenue of $525.
B) a debit to Notes Receivable of $525 and a credit to Cash of $525.
C) a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D) no adjusting entry,since no transaction has occurreD.

E) A) and B)
F) All of the above

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Question 62

Multiple Choice

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As of December 31,Frappa Company has a balance of $5,000 in accounts receivable.Of this amount,$500 is past due and the remainder is not yet due.Frappa has a credit balance of $45 in the allowance for doubtful accounts.Frappa Company estimates its bad debt losses using the aging of receivables method,with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts.How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?

A) $95 (credit) .
B) $55 (credit) .
C) $50 (credit) .
D) $45 (debit) .

E) A) and B)
F) All of the above

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Question 63

Multiple Choice

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The following information is available for a company at the end of the year: What was the amount of write-offs during the year?

When a company that uses the allowance method writes off an actual bad debt:

Use the information above to answer the following question.Assuming the company estimates bad debts as 1.3% of credit sales,what is the required adjusting entry to record bad debt expense for the year?

Credit card companies charge a fee to the seller that accepts the credit cards.This fee is recorded by the seller as a non-operating expense on its income statement.

During the year,a company that uses the allowance method concludes that $6,844 of specific customer accounts will not be collected.These are written off by:

Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category but now forecasts 18% in this category.You use the aging of accounts receivable method of estimating bad debt expense.If the total of credit sales remains unchanged from previous months and no write offs are made,the estimate of bad expense based on the new forecast will:

Under the direct write-off method,the estimated amount of bad debts is debited to which account?

At the end of the third year,the Treadwell Tire Company had accounts receivable of $66,600,and at the end of the fourth year,the company had accounts receivable of $72,600.If the company's net sales revenue during the fourth year were $876,000,the days to collect during year four was (Round all calculations to one decimal place. ) :

In 2014,Lawrence Company had gross sales of $750,000 on account and granted sales discounts of $15,000.On January 1,2014,the Allowance for Doubtful Accounts had a credit balance of $18,000.During 2014,$30,000 of uncollectible accounts receivable were written off.Past experiences indicate that 3% of net credit sales become uncollectible.Using the percentage of credit sales method,what would be the adjusted balance in the Allowance for Doubtful Accounts at December 31,2014?

Preston Corporation issues a $3,000 note to Fulton Corporation on March 1,which carries interest at an annual rate of 5%.Interest is payable when the note matures on June 30.What entry will Fulton make at its year-end,April 30,if interest on the note has not previously been accrued?

On July 1,2014,Icespresso Inc.signed a two-year $8,000 note receivable with 9 percent interest.At its due date,July 1,2016,the principal and interest will be received in full.Interest revenue should be reported on Icepresso's income statement for the year ended December 31,2014,in the amount of:

The direct write-off method for uncollectible accounts is not allowed by either GAAP or IFRS,but is required by the IRS.

The direct write-off method for uncollectible accounts:

When a company lends cash to a customer who signs a promissory note:

Which of the following statements regarding the interpretation of the receivables turnover ratio is not true?

When interest is calculated for periods shorter than a year,the formula to calculate interest is:

Momentum Products Inc. ,just recorded an adjusting journal entry for the current year's estimate of bad debts.Assuming all else is equal,this adjusting journal entry will cause:

Your company lent a customer $5,000 to satisfy the customer's overdue accounts receivable.The loan is for one year at an annual interest rate of 5%.Six months later the customer repays the principal and interest.The principal part of the repayment should be recorded as a: