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124)
Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa Studios
signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due
on the note? (Use 360 days a year.)
A) $8,130 B) $7,800 C) $7,930 D) $130 E) $8,050
125)
Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a
60- day, 10% promissory note for $7,800. If the note is dishonored, but Tubman intends to continue
collection efforts, what is the journal entry to record the dishonored note? (Use 360 days a year.)
A)
Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.
B)
Debit Accounts Receivable—Valley Spa $7,800; credit Notes Receivable $7,800.
C)
Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable
$8,060.
D)
Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes
Receivable $7,800.
E)
Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.
126)
Which of the following is not true about the Allowance for Doubtful Accounts?
A)
It is a contra asset account.
B)
It is a liability account.
C)
It is used instead of reducing accounts receivable directly.
D)
It is debited when uncollectible accounts are written off.
E)
It is credited when bad debts expense is estimated and recorded.
127)
Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash.
Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the
transaction?
A)
Debit Cash $75,000; credit Factoring Fee Expense $3,750; credit Accounts Receivable
$75,000
B)
Debit Cash $71,250; credit Accounts Receivable $71,250
C)
Debit Accounts Receivable $75,000; credit Factoring Fee Expense $3,750; credit Cash
$71,250
D)
Debit Cash $71,250; debit Factoring Fee Expense $3,750; credit Accounts Receivable
$75,000
E)
Debit Accounts Receivable $71,250; debit Factoring Fee Expense $3,750; credit Cash
$75,000
128)
Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which
assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit
sales. What entry should Jervis make on June 28 to record the deposit?
A)
Debit Accounts Receivable $3,500; credit Sales $3,500
B)
Debit Cash $3,500; credit Sales $3,500
C)
Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500
D)
Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
E)
Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500
129)
Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5%
charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card
credit sales. What entry should Brinker make on May 26 to record the deposit?
A)
Debit Cash $4,920; credit Credit Card Expense $120; credit Sales $4,800.
B)
Debit Accounts Receivable $4,680; debit Credit Card Expense $120; credit Sales $4,800.
C)
Debit Accounts Receivable $4,800; credit Sales $4,800.
D)
Debit Cash $4,800; credit Sales $4,800.
E)
Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.
130)
Craigmont uses the allowance method to account for uncollectible accounts. Its year-end
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts
of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 4% of accounts
receivable, what is the amount of the bad debts expense adjusting entry?
A) $4,845 B) $3,700 C) $3,515 D) $4,180 E) $3,850
131)
Craigmont uses the allowance method to account for uncollectible accounts. Its year-end
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts
of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 0.5% of sales,
what is the amount of the bad debts expense adjusting entry?
A) $5,290 B) $4,625 C) $4,750 D) $4,825 E) $3,960
132)
On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers
as payment on account. Compute the maturity date for the note.
A)
October 8
B)
November 6
C)
October 7
D)
November 7
E)
November 8
133)
On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers
as payment on account. Compute the amount due at maturity for the note. (Use 360 days a year.)
A) $8,670 B) $8,613 C) $8,628 D) $8,500 E) $8,192
134)
On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers
as payment on account. What entry should be made on July 9 to record receipt of the note?
A)
Debit Notes Receivable $8,670; credit Sales $8,670.
B)
Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.
C)
Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable
$8,500.
D)
Debit Accounts Receivable $8,500; credit Sales $8,500.
E)
Debit Notes Receivable $8,500; credit Sales $8,500.
135)
On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers
as payment on account. What entry should be made on the maturity date assuming the maker pays
in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)
A)
Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.
B)
Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500.
C)
Debit Cash $8,500; credit Notes Receivable $8,500.
D)
Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670.
E)
Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.
136)
On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as
payment on account. What adjusting entry should be made on the December 31 year-end? (Use 360
days a year.)
A)
Debit Interest Receivable $140; credit Interest Revenue $140.
B)
Debit Notes Receivable $140; credit Interest Revenue $140.
C)
Debit Interest Receivable $1,200; credit Interest Revenue $1,200.
D)
Debit Notes Receivable $140; credit Interest Receivable $140.
E)
Debit Interest Revenue $200; credit Interest Receivable $200.
137)
On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer settle
an account. What entry should be made on the November 1 to record the acceptance of the note?
A)
Debit Note Receivable $10,000; credit Cash $10,000.
B)
Debit Note Receivable $10,200; credit Accounts Receivable $10,000; credit Interest Revenue
$200.
C)
Debit Note Receivable $10,000; credit Accounts Receivable $10,000.
D)
Debit Sales $10,000; credit Accounts Receivable $10,000.
E)
Debit Note Receivable $10,000; credit Sales $10,000.
138)
The unadjusted trial balance at year-end for a company that uses the percent of receivables method to
determine its bad debts expense reports the following selected amounts:
Accounts receivable
$435,000
Debit
Allowance for Doubtful Accounts
1,250
Debit
Net Sales
2,100,000
Credit
All sales are made on credit. Based on past experience, the company estimates 3.5% of ending
account receivable to be uncollectible. What adjusting entry should the company make at the end
of the current year to record its estimated bad debts expense?
A)
Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
B)
Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
C)
Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
D)
Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
E)
Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.
139)
The unadjusted trial balance at year-end for a company that uses the percent of receivables method to
determine its bad debts expense reports the following selected amounts:
Accounts receivable
$435,000
Debit
Allowance for Doubtful Accounts
1,250
Credit
Net Sales
2,100,000
Credit
All sales are made on credit. Based on past experience, the company estimates 3.5% of ending
account receivable to be uncollectible. What adjusting entry should the company make at the end of
the current year to record its estimated bad debts expense?
A)
Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
B)
Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
C)
Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.
D)
Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.
E)
Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.
140)
The following selected amounts are reported on the year-end unadjusted trial balance report for a
company that uses the percent of sales method to determine its bad debts expense.
Accounts receivable
$435,000
Debit
Allowance for Doubtful Accounts
1,250
Debit
Net Sales
2,100,000
Credit
All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to
be uncollectible. What adjusting entry should the company make at the end of the current year to
record its estimated bad debts expense?
A)
Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250.
B)
Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19,750.
C)
Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.
D)
Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.
E)
Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.
141)
On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry
should be recorded on February 1 to record the write-off assuming the company uses the allowance
method?
A)
Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300.
B)
Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300.
C)
Debit Bad Debts Expense $2,300; credit Allowance for Doubtful Accounts $2,300.
D)
Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300.
E)
Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300.
142)
All of the following statements regarding recognition of receivables under U.S. GAAP and IFRS
are true except:
A)
Under U.S. GAAP, provision refers to a liability whose amount or timing is uncertain.
B)
Differences arise mainly from industry-specific guidance under U.S. GAAP.
C)
The realization principle under GAAP implies an arm's length transaction occurs.
D)
Receivables that arise from revenue-generating activities are subject to broadly similar
criteria for U.S. GAAP and IFRS.
E)
U.S. GAAP and IFRS have similar asset criteria that apply to recognition of receivables.
143)
All of the following statements regarding valuation of receivables under U.S. GAAP and IFRS are
true except:
A)
Both allow using percent of sales, percent of receivables, or aging of receivables to estimate
uncollectibles.
B)
Both require that the expenses for estimated collectibles be recorded in the same period
revenues generated from those receivables are recorded.
C)
Both require the allowance method for uncollectibles unless uncollectibles are immaterial.
D)
Both require that receivables be reported net of estimated collectibles.
E)
Both require that the expense related to uncollectibles be recorded when the receivable is
determined to be uncollectible.
144)
Under IFRS, the term provision:
A)
Means establishing an asset account.
B)
Refers to expense.
C)
Means establishing a provision for bad debts.
D)
Means establishing a contra-asset account.
E)
Usually refers to a liability whose amount or timing is uncertain.
145)
Winkler Company borrows $85,000 and pledges its receivables as security. The journal entry to
record this transaction would be:
A)
Debit Cash $85,000 and credit Notes Payable $85,000.
B)
Debit Cash of $85,000 and credit Accounts Receivable $85,000.
C)
Debit Cash of $85,000 and credit Accounts Payable $85,000.
D)
Debit Accounts Receivable $85,000 and credit Notes Payable $85,000.
E)
Debit Note Receivable $85,000 and credit Accounts Receivable $85,000.
146)
Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal
entry to record this sale transaction would be:
A)
Debit Accounts Receivable $625 and credit Sales $625.
B)
Debit Accounts Receivable $625 and credit Cash $625.
C)
Debit Sales $625 and credit Accounts Receivable $625.
D)
Debit Cash of $625 and credit Accounts Receivable $625.
E)
Debit Cash of $625 and credit Sales $625.
147)
Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal
entry to record the collection on account would be:
A)
Debit Cash of $625 and credit Accounts Receivable $625.
B)
Debit Sales $625 and credit Accounts Receivable $625.
C)
Debit Accounts Receivable $625 and credit Cash $625.
D)
Debit Cash of $625 and credit Sales $625.
E)
Debit Accounts Receivable $625 and credit Sales $625.
148)
MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit
card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits
MacKenzie's account immediately when sales are made. The journal entry to record this sale
transaction would be:
A)
Debit Cash of $300 and credit Accounts Receivable $300.
B)
Debit Cash $295.50 and credit Sales $295.50.
C)
Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.
D)
Debit Cash of $300 and credit Sales $300.
E)
Debit Accounts Receivable $300 and credit Sales $300.
149)
MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit
card. Regional Bank deducts a 4% service charge for sales on its credit cards. MacKenzie
electronically remits the credit card sales receipts to the credit card company and receives payment
immediately. The journal entry to record this sale transaction would be:
A)
Debit Cash of $180 and credit Accounts Receivable—Regional $180.
B)
Debit Cash $172.80 and credit Sales $172.80.
C)
Debit Accounts Receivable—Regional $172.80; debit Credit Card Expense $7.20 and credit
Sales $180.
D)
Debit Cash of $180 and credit Sales $180.
E)
Debit Cash $172.80; debit Credit Card Expense $7.20 and credit Sales $180.
150)
Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card.
National Bank deducts a 3% service charge for sales on its credit cards. Kenai electronically remits
the credit card sales receipts to the credit card company and receives payment immediately. The
journal entry to record the collection from the credit card company would be:
A)
Debit Accounts Receivable—National $582; debit Credit Card Expense $18 and credit Sales
$600.
B)
Debit Cash of $618; credit Credit Card Expense $18 and credit Sales $600.
C)
Debit Cash of $618 and credit Accounts Receivable—National $618.
D)
Debit Cash $582 and credit Sales $582.
E)
Debit Cash $582; debit Credit Card Expense $18 and credit Sales $600.
151)
Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security.
Which of the following is true regarding this transaction:
A)
First City Bank is the factor in this transaction.
B)
First City Bank takes ownership of the receivables at the time of the pledge.
C)
Frederick Company no longer has the risk of bad debts.
D)
Frederick Company's financial statements must disclose the pledging of receivables.
E)
No journal entry is required for this event.
79
152)
Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the
date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts.
What entry should Majesty record on the maturity date for this dishonored note?
A)
Debit Accounts Receivable $7,200; credit Allowance for Doubtful Accounts $7,200.
B)
Debit Accounts Receivable $7,200; credit Notes Receivable $7,200.
C)
Debit Bad Debt Expense $7,344; credit Notes Receivable $7,344.
D)
Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable
$7,200.
E)
Debit Accounts Receivable $7,056; debit Interest Revenue $144; credit Notes Receivable
$7,200.
SHORT ANSWER QUESTIONS
153)
Match each of the following terms with the appropriate definitions.
A. Maker of a note
B. Bad debts
C. Aging of accounts receivable
D. Interest
E. Promissory note
F. Payee of a note
G. Accounts receivable
H. Allowance for doubtful accounts
I. Realizable value
J. Expense recognition (matching) principle
_____ 1. Amounts due from customers for credit sales.
_____ 2. A process of classifying accounts receivable by how long it is past its due date for the
purpose of estimating the amount of uncollectible accounts.
_____ 3. A written promise to pay a specified amount of money, usually with interest, either on
demand or at a definite future date.
_____ 4. The expected proceeds from converting an asset into cash.
80
_____ 5. The uncollectible accounts of credit customers who do not pay what they have promised.
_____ 6. The accounting principle that requires expenses to be reported in the same period as the
sales they helped to produce.
_____ 7. The charge a borrower pays for using money borrowed.
_____ 8. A contra asset account with a balance approximating the amount of accounts receivable
expected to be uncollectible.
_____ 9. The party who signs a note and promises to pay it at maturity.
_____ 10. The party to whom the promissory note is payable.
154)
Match each of the following terms with the appropriate definitions.
A. Allowance method
B. Installment accounts receivable
C. Principal of a note
D. Full disclosure principle
E. Materiality constraint
F. Direct write-off method
G. Dishonoring a note
H. Accounts receivable turnover
I. Factoring accounts receivable
J. Pledging accounts receivable
_____ 1. A measure of both the quality and liquidity of accounts receivable that indicates how
often, on average, receivables are received and collected during the period.
_____ 2. Amounts owed by customers from credit sales for which payment is required in periodic
payments over an extended period of time.
_____ 3. The accounting constraint that states that an amount can be ignored if its effect on the
financial statements is unimportant to its users.
_____ 4. Refers to a note maker's inability or refusal to pay a note at maturity.
_____ 5. A method of accounting for bad debts that matches the estimated loss from uncollectible
accounts receivable against the sales they helped to produce.
_____ 6. Selling all or a portion of accounts receivable to a finance company or bank.
_____ 7. The accounting principle that requires financial statements (including the notes) to report
all relevant information about operations and financial condition.
