55. The days-in-receivables ratio:
56. The party to a promissory note who will pay the interest and principal is called the:
57. How will the payee of the promissory note record the note on its books?
58. The total amount of interest for one year calculated annually on a $18,000 promissory note payable for 3
years at 11% is:
59. Nadal Company
On October 1, 2012, Nadal Company received a $50,000 promissory note from Borg Company. The annual
interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to the information provided for Nadal Company. An adjusting entry for Nadal’s year end, December 31,
2012 needed to:
60. Nadal Company
On October 1, 2012, Nadal Company received a $50,000 promissory note from Borg Company. The annual
interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to the information provided for Nadal Company. The effect on Nadal’s financial statements on
September 30, 2013, is as follows:
61. Metal Company
Metal Company sold merchandise to Steel Corporation on December 1, 2012, for $150,000, and accepted a
promissory note for payment in the same amount. The note has a term of three months and an annual interest
rate of 8%. Metal’s accounting period ends on December 31.
Refer to the data provided for Metal Company. What is the maturity date of the note?
62. Metal Company
Metal Company sold merchandise to Steel Corporation on December 1, 2012, for $150,000, and accepted a
promissory note for payment in the same amount. The note has a term of three months and an annual interest
rate of 8%. Metal’s accounting period ends on December 31.
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on
December 31, 2012?
63. Metal Company
Metal Company sold merchandise to Steel Corporation on December 1, 2012, for $150,000, and accepted a
promissory note for payment in the same amount. The note has a term of three months and an annual interest
rate of 8%. Metal’s accounting period ends on December 31.
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on the
maturity date of the note?
64. Peach Tree Farm
Peach Tree Farm 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 Peach Tree Farm. What is the total amount of interest that Peach Tree Farm will
receive when the note is collected?
65. Peach Tree Farm
Peach Tree Farm 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 Peach Tree Farm. At the maturity date, the customer pays the amount due for the
note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that
none of the interest had already been recognized?
66. Lubing Company
Lubing Company sold merchandise to Lewing Corporation. on December 1, 2012, for $100,000. Lubing
accepted a promissory note from Lewing Corporation for $100,000. The note has a term of 6 months and an
annual interest rate of 9%. Lubing’s accounting period ends on December 31, 2012.
Refer to the information provided for Lubing Company. What amount should Lubing recognize as interest
revenue on December 31, 2012?
67. Lubing Company
Lubing Company sold merchandise to Lewing Corporation. on December 1, 2012, for $100,000. Lubing
accepted a promissory note from Lewing Corporation for $100,000. The note has a term of 6 months and an
annual interest rate of 9%. Lubing’s accounting period ends on December 31, 2012.
Refer to the information provided for Lubing Company. What amount should Lubing recognize as interest
revenue on the maturity date of the note?
68. Land Shoes
Land Shoes received a promissory note from a customer on July 1, 2012. The face value of the note is $45,000;
the terms are 12 months and 10% annual interest.
Refer to the information provided for Land Shoes. How much interest revenue will Land Shoes recognize for
the year ended December 31, 2012?
69. Land Shoes
Land Shoes received a promissory note from a customer on July 1, 2012. The face value of the note is $45,000;
the terms are 12 months and 10% annual interest.
Refer to the information provided for Land Shoes. At the maturity date, the customer pays for the note and
interest. Land Shoes made the proper adjustment at the end of December 2012 for interest. The effect of
recognizing the transaction on the maturity date is:
70. On March 1, 2012, Mack Corporation accepted cash of $10,000 and a six-month, $80,000 interest-bearing
note from Gee, Inc., as settlement of an account receivable. Mack has a fiscal year-end of July 31st and Gee
paid the principle and the interest on time. Select the appropriate journal entry that reflects the acceptance of
the note on March 1, 2012?
71. Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note.
Harper Company prepares financial statements on March 31. What adjusting entry Harper should make before
the financial statements can be prepared?
A. Cash 200
Interest Revenue 200
72. What should a company do to improve its accounts receivable turnover ratio?
73. What is the distinguishing characteristic between accounts receivable and notes receivable?
74. On June 3, 2012, Irvine Corporation sells $45,000 of merchandise to a customer on account with terms of
2/10, n/30.
Prepare the journal entries to:
A)
Record the sale using the gross method.
B)
Assume the payment is received on June 10, 2012.
C)
Assume payment is not received until June 21, 2012.
able
Sales Revenue
45,000
B)
6/10
Cash
44,100
Accounts Receivable
45,000
C)
6/21
Cash
45,000
Accounts Receivable
45,000
75. The comparative financial statements for the years ended December 31, 2012 and 2011, for Rimm Company
reported the following information.
Balance
Sheet:
2012
2011
Cash and cash equivalents
$87,000
$71,600
Accounts receivables, less allowance for doubtful
accounts of $90 (2012) and $82 (2011)
3,800
2,500
Income
Stateme
nt:
Net sales for the year
$9,700
$8,800
Net income for the year
920
1,050
Answer these questions concerning Rimm Company’s receivables:
A)
What is the gross amount of accounts receivable for Rimm at December 31, 2012? Why is this amount different than the amount of
receivables shown in the 2012 column of the balance sheet?
B)
What is the net realizable value of accounts receivable for Rimm at December 31, 2012? What does this amount represent?
76. Hammer Associates
The following information concerns Hammer Associates at the end of 2012.
Credit sales
$1,200,000
Sales returns and allowances
50,000
Accounts receivable—December 31, 2012
280,000
Allowance for bad debts—December 31, 2012
(Before adjustment for bad debts)
25,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
45,000
Refer to the information provided for Hammer Associates. If bad debts are estimated at 1% of net credit sales, how much will Hammer report as bad
debts expense for 2012?
A)
$3,800 + $90 = $3,890. It is different because, unlike for the balance sheet presentation, it has not been adjusted for the estimated
B)
$3,800. This is the amount that Rimm expects to collect.
77. Hammer Associates
The following information concerns Hammer Associates at the end of 2012.
Credit sales
$1,200,000
Sales returns and allowances
50,000
Accounts receivable—December 31, 2012
280,000
Allowance for bad debts—December 31, 2012
(Before adjustment for bad debts)
25,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
45,000
Refer to the information provided for Hammer Associates. If the aging approach is used to estimate bad debts, how much bad debts expense will
Hammer report for 2012?
78. Hammer Associates
The following information concerns Hammer Associates at the end of 2012.
Credit sales
$1,200,000
Sales returns and allowances
50,000
Accounts receivable—December 31, 2012
280,000
Allowance for bad debts—December 31, 2012
(Before adjustment for bad debts)
25,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
45,000
Refer to the information provided for Hammer Associates. Determine the effect on Hammer’s accounting equation of the year-end adjustment of bad
debts using the aging approach.
Assets
= Liabilities
+Equity
Assets
= Liabilities
+ Equity
Allow. for bad debts (20,000)
Bad debt expense (20,000)
79. Hammer Associates
The following information concerns Hammer Associates at the end of 2012.
Credit sales
$1,200,000
Sales returns and allowances
50,000
Accounts receivable—December 31, 2012
280,000
Allowance for bad debts—December 31, 2012
(Before adjustment for bad debts)
25,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012)
45,000
Refer to the information provided for Hammer Associates. 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?
80. The following information is available for Spin Corporation for the year ending December 31, 2012:
Net sales
$ 10,000,000
Accounts receivable 12/31/11
$2,500,000
Gross profit
3,000,000
Accounts receivable 12/31/12
2,000,000
Operating income
1,200,000
Total assets
7,500,000
Net income
800,000
Compute the horizontal analysis for accounts receivable 2012.
Compute the vertical analysis for accounts receivable for 2012.
Compute the receivable turnover for 2012.
Compute the days-in-receivables ratio for 2012 (Round intermediate calculation to two decimals.).
81. On October 1, 2012, Data Company sold merchandise to a customer and received a 9%, 4-month
promissory note with a principal amount of $80,000.
A)
Identify the maturity date of the note.
B)
How much total interest revenue will Data Company earn over the term of the note?
C)
How much interest revenue will Data Company recognize during 2012?
A)
January 31, 2013 (4 months from October 1, 2012)
B)
$80,000 ´ 9% ´ 4/12 = $2,400
C)
$80,000 ´ 9% ´ 3/12 = $1,800
82. Tempe Corporation
On May 1, 2012, Tempe Corporation sold merchandise to a customer and received a 8%, 6-month note with a
principal amount of $100,000. Tempe’s year end is December 31.
Refer to the information provided for Tempe Corporation. Identify the maturity date of the note.
83. Tempe Corporation
On May 1, 2012, Tempe Corporation sold merchandise to a customer and received a 8%, 6-month note with a
principal amount of $100,000. Tempe’s year end is December 31.
Refer to the information provided for Tempe Corporation. How much total interest revenue will Tempe
Corporation recognize over the term of the note?
84. Harson Company received a 12%, 6-month promissory note with a principal amount of $10,000 from
Samson Company, for the sale of merchandise on December 1, 2012.
A)
How much interest revenue will Harson recognize as of December 31, 2012?
B)
How much interest revenue will Harson recognize in 2013?
C)
Determine the total amount of cash Harson will collect on the date of the note’s maturity.
A)
$10,000 ´ 12% ´ 1/12 = $100
B)
$10,000 ´ 12% ´ 5/12 = $500
C)
$10,000 + (10,000 ´ 12% ´ 6/12) = $10,600
85. Proctor Corporation sells equipment for $80,000 to Gamble Incorporated on January 1, 2012 in exchange
for note bearing 12 percent interest.
Prepare the following journal entries in the books of Proctor Corporation:
A)
Record the sale on January 1, 2012.
B)
Repayment on December 31, 2012.
C)
Accrue interest on December 31, 2012, and repayment on March 31, 2013.
86. Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of
these credit sales will default. During 2012 a customer defaults on a $6,000 balance related to goods purchased
during 2011. Austin’s accounts receivable and allowance for bad debts balances at the end of the year were
$50,000 and $7,000 (credit) respectively.
Prepare journal entries to record:
A)
Write off the defaulted $6,000 balance.
B)
Adjusting entry to record the bad debt expense for 2012.
C)
What is the net accounts receivable balance at the end of the year?
Sales Revenue
80,000
Cash
89,600
Notes Receivable
80,000
Interest Revenue
9,600
Interest Revenue
9,600
Cash
92,000
Notes Receivable
80,000
Interest Receivable
9,600
Interest Revenue
2,400
87. Monkey Business Company
The Monkey Business Company sells their merchandise only on credit. The following data are available at
December 31, 2012.
Sales
$411,000
Sales returns and allowances
12,000
Accounts receivable at January 1, 2012
89,000
Allowance for bad debts at January 1, 2012
4,100
Cash collections during 2012
385,100
Refer to the information provided for Monkey Business Company. The firm estimates that bad debts could be 2% of net sales.
A)
What amount will Monkey Business recognize as bad debts expense for the year?
B)
Assume that the company has a balance of accounts receivable of $108,900, and an allowance for bad debts of $820 before the
adjustment. What will be the net realizable value once the adjustment from (Part A) is made?
Accounts Receivable
6,000
Allowance for Bad Debts
12,000
($1,200,000 ´ 1% = $12,000)
Net accounts receivable
$37,000
88. Monkey Business Company
The Monkey Business Company sells their merchandise only on credit. The following data are available at
December 31, 2012.
Sales
$411,000
Sales returns and allowances
12,000
Accounts receivable at January 1, 2012
89,000
Allowance for bad debts at January 1, 2012
4,100
Cash collections during 2012
385,100
Refer to the information provided for Monkey Business Company. Assume that the company estimates bad debts using the aging method. The aging
schedule indicates that accounts receivable of $11,500 will be uncollected at the end of the year.
A)
What amount will Monkey Business Company recognize as bad debt expense for the year?
B)
If the ending balance of accounts receivables is $65,200, what is the net realizable value of accounts receivable reported on
December 31, 2012?
89. What is net realizable value?
Company expects to collect from its total accounts receivable balance.
Total accounts receivable balance minus allowance will give the value for it.
Companies must follow the principle of conservatism and report their accounts receivable at net realizable value.
90. What is the purpose of an aging schedule for accounts receivable?
A)
$11,500 – 4,100 = $7,400
$65,200 (Accounts receivable) – 11,500 (Allowance) = $53,700
91. Waltz Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/30.
What does this ratio tell you about Waltz Company?
92. A sales invoice that bears the notation 2/10 means ____________________.
93. To encourage prompt payment, sellers offer a(n) ____________________.
94. According to the ____________________ principle, bad debt expense must be recorded in the period
related to the sale.
95. The method in which companies use two entries to account for bad debt expense- one to estimate the
expense and a second to write off receivables is the ____________________.
96. A(n) ____________________ categorizes the various accounts receivable amounts by their ages.
97. ____________________ are receivables that generally specify an interest rate and a maturity date at which
any interest and principal must be repaid.