Chapter 9 True/False Review
The following are the two
methods of accounting for
uncollectible receivables: The
allowance method and the
liability method.
The two methods for
estimating uncollectible
receivables is aging of
accounts receivable and
percent of sales method.
One day’s sales is the
numerator of days' sales in
receivables.
FIND 5 TRUE OR 5 FALSE STATEMENTS IN A ROW (Change font color/or shade box)
To record a dishonored
note, the following entries
would be required: debit
to accounts receivable; a
credit to notes receivable;
and a credit to interest
revenue.
The Acid Test Ratio is a
more stringent measure
than the current ratio to
measure a company's
ability to pay its current
liabilities.
A discounted note results
if a maker of a promissory
note fails to pay the note
on the due date.
Loans to employees are considered
an example of Other Receivables.
Handling cash receipts would best
be handled by the credit
department.
FREE
Interest rates are generally
stated as a monthly rate.
The percent of sales
method is the incomestatement approach to
estimating bad debts.
The direct write-off method
requires an entry with a credit to
accounts receivable to record the
uncollectible accounts expense.
Paying a credit card discount
expense is NOT avoided by a
company that accepts
national credit cards.
The direct write-off
method is the balance
sheet approach to
estimating bad debts.
A disadvantage of selling on credit
is that some customers do not pay,
creating an expense.
College Accounting
The principal amount of a $30,000, 12%,
1 year note is $30,000.
The following entries would
be used to account for
uncollectible receivables
using the direct write-off
method: Uncollectible
accounts expense is debited
and accounts receivable is
credited.
The allowance for uncollectible accounts
currently has a credit balance of $900.
After analyzing the accounts in the
accounts receivable subsidiary ledger,
the company's management estimates
that uncollectible accounts will be
$15,000. $14,100 will be the amount of
uncollectible-account expense reported
on the income statement.
The date of maturity of a 90day note dated August 26 is
November 24.
If a company uses the direct write-off
method to account for uncollectible
receivables, no entry is made to the
customer’s accounts receivable.
The maturity value of a 90day, 12% note, for $20,000 is
$20,600
The allowance for uncollectible accounts
currently has a credit balance of $200.
The company's management estimates
that 2.5% of net credit sales will be
uncollectible. Net credit sales are
$115,000. $2,875 is the amount of
uncollectible-account expense reported
on the income statement.
Accounts receivable has a balance of
$5,000 and the allowance for
uncollectible accounts has a credit
balance of $440. $4400 is the net
accounts receivable balance after a $160
account receivable is written off.
Interest revenue must be
reported for a note
receivable that is
outstanding at the end of the
accounting period.
The acid-test ratio is
computed as current assets
divided by current liabilities.