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Exam 7: Cash and Receivables

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Question 41

True/False

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The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Income.

A) True
B) False

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Question 42

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A check for $235 is incorrectly recorded by a company as $253.On the bank reconciliation the $18 error should be

A) deducted from the balance per books.
B) added to the balance per bank.
C) deducted from the balance per bank.
D) added to the balance per books.

E) None of the above
F) B) and C)

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Question 43

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The debtor named in a promissory note is called the payee.

The sale or transfer of accounts receivable to raise funds is called

A successful credit policy balances an acceptable level of credit losses with the potential for profit from total credit sales.

Using the percentage of net sales method,uncollectible accounts expense for the year is estimated to be $54,000.If the balance of the Allowance for Uncollectible Accounts is an $18,000 credit before adjustment,what is the balance after adjustment?

Under the allowance method,when a year-end adjustment is made for estimated uncollectible accounts,

Assume that part of accounts and other receivables on Thompson Toys' February 2,2010,balance sheet is comprised of $43,225,000 of notes receivable.Two notes make up the amount.The first note has a face value of $30,000,000 and bears interest at 7 percent for 90 days.The second note has a face value of $13,225,000 and bears interest at 9 percent for 120 days.Record the journal entry for the collection of the 7 percent note on May 3 and the dishonor of the 9 percent note on June 2.(Omit explanations; assume no interest had been accrued.)Round amounts to nearest dollar.

A promissory note may be issued for an amount to be determined at a future date.

Purchasing receivables with recourse is riskier than purchasing them without recourse.

The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total of all accounts written off over the years.

Under what specific circumstance will application of the direct charge-off method be in accordance with the matching principle?

It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net income.

Which of the following situations results in a contingent liability?

Having a compensating balance increases a company's liquidity.

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment) would be

The Allowance for Uncollectible Accounts is a contra-asset account.

When an account receivable that was previously written off is collected,it is necessary to reverse the entry for the write-off before recording the collection.

Following a lenient credit-granting policy will probably result in fewer defaults by customers.

All of the following bank reconciliation items would result in a journal entry on the company's books except