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Exam 9: Accounting for Receivables

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Question 31

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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.

F) A) and E)
G) A) and C)

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Question 32

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The process of using accounts receivable as security for a loan is known as pledging accounts receivable.

A) True
B) False

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Question 33

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Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

The account receivable turnover measures:

The maturity date of a note receivable:

Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method.

The banker's rule simplifies interest computations by treating a year as having 365 days.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is: A) $\begin{array}{|l|r|r|}\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Allowance for Doubtful Accounts } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkinse } & & 2,000 \\\hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Cash } & & 2,000 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Allowance for Doubtful Accounts } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Cash } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable-A. Hopkins } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable-A. Hopkins } & & 2,000 \\\hline\end{array}$

What is the maturity date of a 120-day note receivable dated March 5?

No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

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?

Explain how to record the receipt (acceptance)of a note receivable.

A company received a $15,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable.

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The expense recognition (matching) principle, as applied to bad debts, requires:

Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.

Federal laws prohibit the selling of accounts receivables to factors.

A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account, less a 2.5% service charge. Assume that on April 13, the company sold $20,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

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.)