1LWhich ofthe folowing receivables would not be classified as an Yother receivable”? ‘advance to an employee B'Refundable come ta Cotes receivable Dinterest receivable 2.The term "receivables" refers to ‘Armerchandise to be collected from individuals or companies. B.cash tobe pald to crectors Smounts ue from individuals or companies, Dicash to be paid to debtors, 3.Trade accounts receivable ae valued and reported on the balance sheet {in the investment section, Bat gross amounts iess sales returns and allowances Cat net realizable value Dionly they are not past due. 4.Whien ofthe folowing would be considered as an unikey occurrence? Manufacturer offers» cash discount to 2 wholesaler B.Wholesaer offers a cash discount toa retaler. CRetalir offers a cash elacount to a customer DIAl ofthese are standard practices 53.Under the alowance methodit writing off an uncolectible account ‘affects only balance sheet accounts. B affects both balance sheet and income statement accounts CCaffects only income statement accounts. Disnot acceptable practice Gilfa company falls to record estimated bad debts expenseft ‘cash realizable value fs understated, Brrevenues are understated Creceivables ore understated. Diexpenses are understated, Tvihen the allowance method is used to account for uncollectible accountsf Bad Debts Expense is debited when ‘Amanagement estimates the amount of uncoliectbies. Boa sale ts made Can account becomes bad and is written of. Dia customers account becomes past-due {The collection of an account that had been previously writen off under the allowance method of accounting for ‘uncollectbies Awillincrease income in the period its collected. B.does not affect income Inthe period itis collected ‘Cwill decrease income inthe period itis collected Brrequires a correcting entry forthe period in which the account was written off 9.The percentage of sales basis of estimating expected uncollectbles ‘emphasizes balance sheet relationships B.emphasizes the matching of expenses with revenues, Cemphasizes cash realizable value. Dis not generally accepted as a basis fr estimating bad debts. TOA debt balance in the Allowance for Doubtful Accounts [Aiindicates that actual Dad debt write-offs have exceeded previous provisions for bad debts. Bis the normal balance for that account. iis not gonoraly secoptod as a basis for estimating LOLA debit balance in the Alomance fr Doubtful Accounts ‘indicates that actual bad debt write-offs have exceeded previous provisions for bad debts Bic the normal balance for that account Cindicates that actual bad debt write-offs have been less thon what was estimated Bcannot occur the percentage oY sales method of estimating bad debts fused 11. Under the allowance method of accourting for uncalectible accounts Athe cash realizable value of accounts recelvable is greater before on account I witten off than after itis written of ‘Bad Debts Expense is debited when a specific account's written off as uncollecble, C-Alowance for Doubtful Accounts fs closed each yeart income Summary. Dithe cash realizable vaiue of accounts receivable in the balance sheet i the came before and after an account is ‘writen off 12.When an account is writen off using the allowance methodt the Atetal accounts receivable wil decrease B.cash realizable valve of totel accounts receivable will increase. C'Siowance sccount wil increase. Ditotal accounts receivable wil stay the same. {bi an account collected after hoving been previously writen off [Athe slonance account snoule be debited Bonly the control account needs to be credited Cloth income statement and balance sheet accounts wil be affected Bithere wit be both a debit and o credit to accounts receivable 1i.Wvhen the allowance method of recognizing bad debls expense is usef the entry to recognize that expense Ainereases net income, Bihas no effect on current assets. Chas no effect an net income: Didocronses current assets. 15: The category wade receivables” includes Agavances to affcers ana employees Bincome tax refunds recewvable, Claims against insurance companies for casualties sustained Binone of these. 16What isthe preferable presentation of accounts receivable fom officerstf emplayeestf or affilated companies on & balance sheet? AAs offsets to capital .By means of footnates only CAS trade notes and accounts receivable if they otherwise quality as current assets.Binone of these, 26.What is the preferable presentation of accounts receivable from officers employees or affiliated companies on alance sheet? ‘Ads oftets to capital B.By means of fostnotes only. CAS trade notes and accounts receivable if they otherwise qualify as curent assets. D.As assets but separately from other receivables. Y7.Why isthe allowance method preferred over the direct write-off method of accounting for bad debts? ‘Almproved matching ef bad debt expense with revenue BuAllowance method i used for tax purposes. Cstimates are uses D.Determining worthless accounts under direct write-off method is dificult todo. TaWihich ofthe following methods of determining annual bed debt expense best achieves the matching concept? ‘Percentage of sales BrPercentage of ending accounts receivable (CPercentage of average accounts recelvabie Bibirect wrte-of? T9.AL the beginning of 20194 Gannon Company received a three-year zerovinterest-bearing PINOOD trade note. The market fate Tar equivalent notes was 8% at that time. Gannon reported this note as a PIITODO trade note Feceivable on its 2019 year-end statement of financial position and PLMO00 as sales revenue for 2019, What effect ‘ic this accounting forthe note have an Gannon's net earings for 2019H 2020 and 2021 respectively? ‘Averstatet!understateff understateff understate B.Overstatet overstate understate zero C.Overstater oversatelf overstate overstate DiNone of these 20.AG Inc. made 9 P1OMO0O sale on account with the following termsffi 1/251 «/30. Ifthe company uses the gross method te record sales made on creat what is/are the debits) inte Journal entry t9 record the sale? ‘A.Debit Accounts Receivable for P10H000. B.Debit Accounts Receivable for PSH90O. Debit Accounts Receivable for P9FT9O0 and Sales Discounts for P100 Di bebit Accounts Receivable for PIOMOOS and Sales Discount for PLOO Pr. 7-160—Amottization of discount on note. ‘On December 31, 2010, Green Company finished consultation services and accepted in ‘exchange a promissory note with a face value of $400,000, a due date of December 31, 2013, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily’ determinable and the note is not readily marketable. Under the ‘ircumstances, the note is considered to have an appropriate imputed rate of interest of 10%. ‘The following interest factors are provided: Interest Rate _ ‘Table Factors For Three Periods % 10%. Future Value of 1 115763 733100 Present Value of 1 86384 75132 Future Value of Ordinary Annuity of 1 3.18250 3'31000 Present Value of Ordinary Annuity of 1 2.72325 2.48685 Instructions {@) Detemnine the present value of the note. (©) Prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.)Cashand Recenablos 7-44 Solution 7-160 (a) Present value of interest = $20,000 248685 = $ 49,737 Present value of maturity vaue = $400,000%.75132 = 300.528 Sa50265 (©) Gren Company ‘Schedule of Note Discount Amortization Effective Interest Method ‘5% Note Discounted at 10% (Imputed) cash Effective Unamortizes ——Present Intorest Interest Discount Discount Value —Date_ (5%) (40%) Amortized Balance ofNate Taa1N0 $49,735 $350,265 1231/11 $20,000 $ 35027 $15,027 34,708 365,202 123112 20,000 36,529 16,529 18,179 381,821 128113 " B.179 ° 400,000 —zom00 _ 38.179" Seomoo | ige7as Saas *$3 adjustment to compensate for rounding PROBLEMS /-159—Entries for bad debt expense. ‘The trial balance before adjustment of Rison Company reports the following balances: Or __ Ge ‘Accounts receivable ‘$100,006 ‘Allowance for doubtful accounts $2,500 Sales (all on credit) 750,000 Sales retums and allowances. 40,000 Instructions (a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated tobe (1) 6% of gross accounts receivable and (2) 1% of net sales. {b) Assume that all the information above is the same, except that the Alowance for Doubtful ‘Accounts has a debit balance of $2,500 instead of a credit balance, How wal this difference affect the journal entries in part (a)? Solution 7-159 (2) (1) Bad Debt Expense... nus en nen ‘Allowance for Doubtful Accounts. . 3,500 Gross receivables ‘$100,000 Rat 6% Total allowance needed 000 Present allowance (2.500) Bad debt expense Samo7-40 _ Test Bank for Intermediate Accounting: IFRS Edition Solution 7-159 (cont) (2) Bad Debt Expense. os . 7,100 ‘Allowance for Doubtful Accouns.. 7,100 Sales ‘Sales returns and allowances Net sales Rate Bad debt expense (0) The percentage of receivables approach would be affected as follows: Gross receivables $100,000 Rate —_o% Total alowance needed 6,000 Present allowance 2500 ‘Additional amount required 8500 ‘The journal entry is therefore as follows: 8,500 8.500 ‘The entry would not change under the percentage of sales method. Pr. 7-161—Accounts receivable assigned. Prepare journal entries for Mars Co. for: (a) Accounts receivable in the amount of $500,000 were assigned to Utley Finance Co. by Mars {as security for a loan of $425,000. Utley charged a 3% commission on the accounts; the intorost rato on the note is 12%. {(b) During the first month, Mars collected $200,000 on assigned accounts after deducting $450 of discounts. Mars wrote off a $530 assigned account. (c) Mars paid to Utley the amount collected plis one month's interest on the note. Solution 7-1 (a) Cash 410,000 Finance Charge... oon so 18,000 Notes Payable, 425,000 (b) Cash . 200,000 Sales Discounts. * 450 ‘Allowance for Doubtful Accounts, . samara, B80 Accounts Receivable. 200,980 (c) Notes Payable. : rz sossenasune 200,000 Interest Expense. 4250 Cash, 204,2507-421 Jank for Intermediate Accounting: IFRS Edition Pr. 7-162—Factoring Accounts Receivable. ‘On May 1, Dexter, Inc. factored $800,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Dexter was to handle disputes concerning service, and ‘Quick Finance was to make the colections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts, Instructions, (a) Prepare the journal entry required on Dexter's books on May 1 (©) Prepare the journal entry required on Quick Finance's books on May 1. (c) Assume Dexter factors the $800,000 of accounts receivable with Quick Finance on a with ‘recourse basis instead. Prepare the joumal entry required on Dexter's books on May 1. Solution 7-162 (a) Cash. 736,000 Due from Factor (2% * $800,000). 16,000 Loss on Sale of Receivables (6% x $800,000). 48,000 ‘Accounts Receivable 800,000 (0) Accounts Receivable. 200,000 Due to Dexter. ‘i : 16,000 Financing Revenue. 48,000 Cash 736,000 (€) Cash, en 736,000 Due trom Factor. ae acl 16,000 Finance Charge. 48,000 ‘Accounts Receivable. 200,000