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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 51

True/False

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The specific identification inventory method is not practical for companies that sell many low-priced, high turnover items.

A) True
B) False

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Question 52

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Rosierre Company purchased two identical inventory items. One of the items cost $6.00 and was purchased in January. The other was purchased in February, and the company paid $7.00 for this item. One of the items was sold in March at a price of $10.00. Select the correct answer assuming that Rosierre uses a FIFO cost flow assumption.

A) The balance in ending inventory would be $7.00.
B) The amount of gross margin would be $3.00.
C) The amount of ending inventory would be $6.50.
D) The amount of ending inventory would be $6.00.

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

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Question 53

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The net realizable value of accounts receivable is calculated,

Howard Company accepts a credit card as payment for $950 of services provided to a customer. The credit card company charges a 4% fee for its services. Select the answer that shows how the entry to record the service revenue would affect Barlett's financial statements.

A company that uses the allowance write-off method of accounting for uncollectible accounts does not prepare a year-end adjusting entry to estimate its uncollectibles.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \text { Decrease } = \mathrm { D } \text { No Effect } = \mathrm { N }$ On September 30, 2014, Falls Company collected the principal on a one-year note receivable dated October 1, 2011. Show the effect of the collection of the principal on Falls' financial statements.

Olin Company had accounts receivable of $449,000. Before it recorded the adjusting entry for uncollectible accounts, the balance in the Allowance for Doubtful Accounts was $870. Olin estimates that it will not collect 3 percent of its accounts receivable. What amount of uncollectible accounts expense should be recorded?

On October 1, 2014, Balkan, Inc. accepted from another corporation a 1-year note receivable in the amount of $15,000, with an interest rate of 6%. How did this transaction affect Balkan's financial statements?

The adjusting entry to recognize uncollectible accounts expense is an asset use transaction.

How does the collection of an account receivable previously written off affect the financial statements? (Assume the use of the allowance method to account for uncollectible receivables.)

On December 31, 2014, the Grant Corporation estimated that $2,000 of its receivables might not be collected. On that date, the balance of Accounts Receivable was $76,000. On February 1, 2015, Grant wrote off a delinquent account from a customer. Grant uses the allowance method of accounting for uncollectible accounts. Indicate whether each of the following statements is true or false. 1. The write-off entry on February 1, 2015 had no effect on Grant's total assets 2. The write-off entry on February 1, 2015 decreased net income for 2015 3. The net realizable value of accounts receivable (after the appropriate adjusting entry on December 31, 2014) was $76,000 4. The entry to write off the account on February 1, 2015 included recognition of Uncollectible Accounts Expense 5. The adjusting entry on December 31, 2014 had no effect on Grant's total assets

The following information is available for K.M.R. Company, which uses the allowance method of accounting for uncollectible accounts. K.M.R. estimates that 1% of sales on account will be uncollectible. After several attempts at collection during 2014, K.M.R. wrote off an account of $200 that could not be collected. Required: Indicate the effects on the financial statements of the following events: a) 2014 sales b) 2014 collections on account c) Write-off of the uncollectible account d) Uncollectible accounts expense for 2014 Round amounts to nearest dollar. Show amounts of increases and decreases. For cash flows, indicate whether they are operating, investing, or financing activities.

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

In an inflationary period, which inventory cost flow method, LIFO or FIFO, will produce the smaller amount of net income? Explain.

Bruner Company uses the percent of receivables method to estimate the amount of its uncollectible accounts expense. At the end of 2014, Bruner had a balance of $750 in its Allowance for Doubtful Accounts. The amount of Accounts Receivable at the end of the period was $80,000, and the company estimates that 4% will be uncollectible. What would be the amount of Uncollectible Accounts Expense for 2014?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ On November 1, 2014, Hardin Company accepted a credit card as payment for $2,000 of services rendered to one of its customers. Assume the credit card fee of 3% is recorded on the date of the sale. Show the effect of the sale and credit card fee on Ulmer's financial statements.

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $25,000 of service on account. The company collected $21,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account. The net realizable value of Bay's accounts receivable as of December 31, 2014 was

After the accounts are adjusted at the end of the year, Accounts Receivable has a balance of $450,000, Uncollectible Accounts Expense for the year was $18,000, and Allowance for Doubtful Accounts has a balance of $19,200. What is the net realizable value of the accounts receivable?

On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales. The net realizable value of receivables appearing on the December 31, 2014 balance sheet will amount to:

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ On December 31, 2014, Stuart Co. estimated it had $8,000 of uncollectible accounts related to credit sales it made during the year. Stuart, which uses the allowance method, made the proper adjusting entry on this date. Indicate the effects of the adjusting entry.