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Exam 7: Accounting for Receivables

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Question 21

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Which of the following is the term commonly used to describe the practice of reporting the net realizable value of receivables in the financial statements?

A) Cash flow method.
B) Allowance method.
C) Direct write-off method.
D) Accrual method.

E) None of the above
F) A) and D)

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Question 22

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Elliston Company accepted credit card payments for $10,000 of services provided to customers.The credit card company charges a 3% fee for handling the transaction.Which of the following describes the effect of this transaction?

A) Increase revenue by $9,700
B) Increase assets by $10,000
C) Increase stockholders' equity (retained earnings) by $9,700
D) Increase net income by $10,000

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

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Question 23

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If a company estimates uncollectible accounts based on a percentage of receivables,the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.

Which of the following is not an advantage of accepting credit cards from retail customers?

Which of the following is not a significant difference between the allowance method and the direct write-off method?

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -Which of the following describes the effects of Kincaid's entry to recognize the write-off of the uncollectible accounts?

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -What is the amount of uncollectible accounts expense that will be reported on the Year 2 income statement?

Domino Company ages its accounts receivable to estimate uncollectible accounts expense.Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800,respectively.During Year 2,the company wrote off $4,640 in uncollectible accounts.In preparation for the company's estimate of uncollectible accounts expense for Year 2,Domino prepared the following aging schedule: What amount will be reported as uncollectible accounts expense on the Year 2 income statement?

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

Which of the following is (are) the term(s) used to describe the person responsible for making payment on the due date of a promissory note?

On June 1,Year 2,Carolina Company collected a $24,000 note receivable that had been issued on June 1,Year 1.The note carried a 6% interest rate.On June 1,Year 2,the company will recognize interest revenue in the amount of $1,440.

[The following information applies to the questions displayed below.] On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. -What is the net realizable value of receivables that will be reported on Kincaid's Year 2 balance sheet?

When an uncollectible account receivable is written off,the amount of total assets is unchanged.

The collection of an account receivable is an asset source transaction.

When is it acceptable to use the direct write-off method?

With the direct write-off method,writing off an account receivable is an asset use transaction.

[The following information applies to the questions displayed below.] 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?

Which of the following is a cost of extending credit to customers?

When a company accepts a credit card payment for a sale,the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.

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