88. A company needs to record 6 months of accrued interest on a 4-year, 12%, $12,000 promissory note
payable. How much interest expense should be accrued?
89. Academy Grill Supply
On October 1, 2012, the company received a $50,000 promissory note from a customer. The annual interest rate
is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to Academy Grill Supply. If the company’s year ends September 31, 2013, an adjusting entry is needed
to:
90. Academy Grill Supply
On October 1, 2012, the company received a $50,000 promissory note from a customer. The annual interest rate
is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to Academy Grill Supply. The effect on the company’s financial statements on September 30, 2013, is as
follows:
91. Absolute Appliances
The company sold merchandise to a customer on December 1, 2012, for $120,000. The company accepted a
promissory note as payment. The note has a term of three months and an annual interest rate of 10%. The
company’s accounting period ends on December 31.
Refer to Absolute Appliances. What is the maturity date of the note?
92. Absolute Appliances
The company sold merchandise to a customer on December 1, 2012, for $120,000. The company accepted a
promissory note as payment. The note has a term of three months and an annual interest rate of 10%. The
company’s accounting period ends on December 31.
Refer to Absolute Appliances. What amount should the company recognize as interest revenue on December
31, 2012?
93. Absolute Appliances
The company sold merchandise to a customer on December 1, 2012, for $120,000. The company accepted a
promissory note as payment. The note has a term of three months and an annual interest rate of 10%. The
company’s accounting period ends on December 31.
Refer to Absolute Appliances. What amount should the company recognize as interest revenue on the maturity
date of the note?
94. The College Store accepts MasterCard for payments of purchases made by students. The credit card drafts
are deposited directly in a bank account. MasterCard charges a 1.55% collection fee. Credit card drafts totaling
$10,000 are deposited during August. Recording the sales and deposits will result in an increase in
95. Accent Flooring
The company received a promissory note from a customer on March 1, 2012. The principal amount of the note
is $20,000; the terms are 3 months and 9% annual interest.
Refer to the information for Accent Flooring. What is the total amount of interest the company will receive
when the note is collected?
96. Accent Flooring
The company received a promissory note from a customer on March 1, 2012. The principal amount of the note
is $20,000; the terms are 3 months and 9% annual interest.
Refer to the information for Accent Flooring. At the maturity date, the customer pays the amount due for the
note and interest. What entry is required on the books of Accent Flooring on the maturity date assuming that
none of the interest had already been recognized?
97. Abbot Safe & Lock
The following information was obtained from the company’s records for 2012:
Credit sales during the year
$3,200,000
Accounts receivable—December 31, 2012
325,000
Allowance for doubtful accounts—December 31, 2012
35,000
Bad debt expense for the year
20,000
Refer to Abbot Safe & Lock. What amount will the company show on its year-end balance sheet for the net realizable value of its accounts
receivable?
98. Abbot Safe & Lock
The following information was obtained from the company’s records for 2012:
Credit sales during the year
$3,200,000
Accounts receivable—December 31, 2012
325,000
Allowance for doubtful accounts—December 31, 2012
35,000
Bad debt expense for the year
20,000
Refer to Abbot Safe & Lock. What is the effect on liquidity when the company records its estimate for bad debt expense using the allowance
method?
99. A Better Mousetrap
The company sold merchandise to a customer on December 1, 2012, for $100,000. The customer paid with a
promissory note that has a term of 6 months and an annual interest rate of 9%. The company’s accounting
period ends on December 31.
Refer to A Better Mousetrap. What amount should the company recognize as interest revenue on December 31,
2012?
100. A Better Mousetrap
The company sold merchandise to a customer on December 1, 2012, for $100,000. The customer paid with a
promissory note that has a term of 6 months and an annual interest rate of 9%. The company’s accounting
period ends on December 31.
Refer to A Better Mousetrap. What amount should the company recognize as interest revenue on the maturity
date of the note?
101. Art Shoes
This company received a promissory note from a customer on July 1, 2012. The face amount of the note is
$45,000; the terms are 12 months and 10% annual interest.
Refer to Art Shoes. How much interest revenue will the company recognize for the year ended December 31,
2012?
102. Art Shoes
This company received a promissory note from a customer on July 1, 2012. The face amount of the note is
$45,000; the terms are 12 months and 10% annual interest.
Refer to Art Shoes. At the maturity date, the customer pays for the note and interest. The company made the
proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity
date is
103. Advanced Packaging accepted a credit card account receivable in exchange for $25,000 of services
provided to a customer. The credit card company charges a 4% service charge. Recording the transaction in the
company’s accounting records will have what effect on the accounting equation?
104. What should a company do to improve its accounts receivable turnover rate?
105. On January 2, Alfredo Corporation sold merchandise with a gross price of $100,000 to a customer with
terms of 2/10, n/30. How much Sales Discounts would be recorded if payment was received from the customer
on January 8? Assume the company uses the Gross Method of recording receivables.
106. All of the following are criteria that the SEC requires to be met before revenue is considered realized (or
realizable) and earned EXCEPT:
107. Internal control for sales involve which of the following documentation?
108. Which of the following would be correct if a company factored $2,500,000 of receivables with a 2 percent
fee?
109. The following information is available for All Care Nursing Supply for fiscal year ending December 31,
2012. Calculate the Accounts Receivable Turnover Ratio:
Net Sales
$450,000
Accounts Receivable, December 31, 2011
$175,000
Operating Income
$120,000
Accounts Receivable, December 31, 2012
$125,000
Net Income
$100,000
110. Advanced Technology reported the following on its balance sheet at December 31, 2012:
Accounts receivable, less Allowance for Doubtful Accounts of $20,500
$580,200
What is the net realizable value of the company’s accounts receivable?
What is the balance of the accounts receivable account?
Are you able to determine whether the company uses the allowance method or the direct write off method for bad debts? Why or
why not?
$580,200
$580,200 + $20,500 = $600,700
111. Atlantis Tropicals
The following information was taken from the company’s records at the end of 2012.
Credit Sales
$1,000,000
Sales returns and allowances
80,000
Accounts Receivable—December 31, 2012
255,000
Allowance for Doubtful Accounts—December 31, 2012
(Before adjustment for bad debts)
23,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
35,000
Refer to Atlantis Tropicals. If bad debts are estimated at 1% of net credit sales, how much will the company report as bad debts expense for 2012?
112. Atlantis Tropicals
The following information was taken from the company’s records at the end of 2012.
Credit Sales
$1,000,000
Sales returns and allowances
80,000
Accounts Receivable—December 31, 2012
255,000
Allowance for Doubtful Accounts—December 31, 2012
(Before adjustment for bad debts)
23,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
35,000
Refer to Atlantis Tropicals. If the aging approach is used to estimate bad debts, how much bad debts expense will the company report for 2012?
113. Atlantis Tropicals
The following information was taken from the company’s records at the end of 2012.
Credit Sales
$1,000,000
Sales returns and allowances
80,000
Accounts Receivable—December 31, 2012
255,000
Allowance for Doubtful Accounts—December 31, 2012
(Before adjustment for bad debts)
23,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
35,000
Refer to Atlantis Tropicals. If the aging approach is used to estimate bad debts, how much is the net realizable value of the accounts receivable at
December 31, 2012?
114. Atlantis Tropicals
The following information was taken from the company’s records at the end of 2012.
Credit Sales
$1,000,000
Sales returns and allowances
80,000
Accounts Receivable—December 31, 2012
255,000
Allowance for Doubtful Accounts—December 31, 2012
(Before adjustment for bad debts)
23,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
35,000
Refer to Atlantis Tropicals. Assume that the net realizable value is $210,000 after the adjustment for bad debts in 2012. How much is the net
realizable value of accounts receivable after a customer’s account of $15,000 is written off? Explain why.
115. Atlantis Tropicals
The following information was taken from the company’s records at the end of 2012.
Credit Sales
$1,000,000
Sales returns and allowances
80,000
Accounts Receivable—December 31, 2012
255,000
Allowance for Doubtful Accounts—December 31, 2012
(Before adjustment for bad debts)
23,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
35,000
Refer to Atlantis Tropicals. Determine the effect on the company’s accounting equation of the year-end adjustment of bad debts using the aging
approach.
Assets
= Liabilities
+ Stockholders’ Equity
116. Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2012, the following data are
available:
Sales
$1,200,000
Sales returns and allowances
50,000
Accounts Receivable—January 1, 2012
225,000
Allowance for doubtful accounts—January 1, 2012
15,000
Collections during 2012
1,050,000
Accounts written off as uncollected during 2012
10,000
Refer to Aardvark Resale. Determine the balance of Accounts Receivable at December 31, 2012.
Assets
+ Stockholders’ Equity
Allow. For Doubtful Accounts (12,000)
Bad Debt Expense (12,000)
117. Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2012, the following data are
available:
Sales
$1,200,000
Sales returns and allowances
50,000
Accounts Receivable—January 1, 2012
225,000
Allowance for doubtful accounts—January 1, 2012
15,000
Collections during 2012
1,050,000
Accounts written off as uncollected during 2012
10,000
Refer to Aardvark Resale. Assume that the company estimates bad debts at 2% of net credit sales.
What amount will the company record as bad debts expense for 2012?
How much is the net realizable value of accounts receivable reported on the company’s balance sheet at December 31, 2012?
118. Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2012, the following data are
available:
Sales
$1,200,000
Sales returns and allowances
50,000
Accounts Receivable—January 1, 2012
225,000
Allowance for doubtful accounts—January 1, 2012
15,000
Collections during 2012
1,050,000
Accounts written off as uncollected during 2012
10,000
Refer to Aardvark Resale. Assume that the company estimates bad debts based on the aging method, and the aging schedule indicates that $30,100
of the year-end accounts receivable will be uncollected.
What amount will the company recognize as bad debts expense for the year?
How much is the net realizable value of the receivables to be reported on the company’s balance sheet at year-end?
$30,100 – ($15,000 – $10,000) = $25,100
($315,000 – $30,100) = $284,900
A)
($1,200,000 – $50,000) ´ .02 = $23,000
119. Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2012, the following data are
available:
Sales
$1,200,000
Sales returns and allowances
50,000
Accounts Receivable—January 1, 2012
225,000
Allowance for doubtful accounts—January 1, 2012
15,000
Collections during 2012
1,050,000
Accounts written off as uncollected during 2012
10,000
Refer to Aardvark Resale. Since the company has a choice of acceptable methods to estimate bad debts, what factors should be considered in the
selection?
120. Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2012, the following data are
available:
Sales
$1,200,000
Sales returns and allowances
50,000
Accounts Receivable—January 1, 2012
225,000
Allowance for doubtful accounts—January 1, 2012
15,000
Collections during 2012
1,050,000
Accounts written off as uncollected during 2012
10,000
Refer to Aardvark Resale. Can the company use the direct write-off method rather than the allowance method to account for bad debts expense?
Explain why or why not.