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Exam 8: Receivables

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Question 41

True/False

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Accounts receivable arise from credit sales to customers by both retailers and wholesalers.

A) True
B) False

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verified

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Question 42

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The days' sales uncollected ratio measures the liquidity of receivables.

A) True
B) False

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Question 43

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A promissory note from a customer

Prepare Jenna Corp.'s journal entries to record the above transactions. The following series of transactions occurred during 2020 and 2021 when Jenna Corp. sold merchandise to Rachel Lee. Jenna Corp's annual accounting period ends on December 31. Assume 28 days in the month of February. 1-Oct-20 Sold $\$ 42,000$ of merchandise (cost $\$ 35,000$ ) to Rachel Lee, terms 1/15, $\mathrm { n } / 45$ . 15-Nov-20 Rachel indicated she won't be able to pay the account until early next year. She agrees to change the account to a 120 day, $10 \%$ note receivable. 31-Dec-20 Prepared the adjusting entry to record accrued interest. 16-Mar-21 Jenna receives a cheque from Rachel Lee for the maturity value of the note. 22-Mar-21 Jenna receives notification that Rachel Lee'scheque is being returned for non-sufficient funds. 31-Dec-21 Jenna decides to write off Rachel Lee's account as uncollectible. Jenna uses the allowance method of accounting for bad debts.

TechCom has net sales of $435,000 and average accounts receivable of $87,000. What is the accounts receivable turnover for the period?

TechCom factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this would include a debit to Cash of $35,000; a debit to Factoring Fee Expense of $700; and a credit to Accounts Receivable of $35,700.

Cortez Co. had accounts receivable totalling $450,000 and an allowance for doubtful accounts with a balance of $5,000 on June 1, 2018. On June 2 Cortez wrote off $2,400 of uncollectible accounts. The net carrying value of accounts receivable before and after the write-off was

If a customer owes interest on a bill, Accounts Receivable is debited, and Interest Expense is credited.

Explain the difference between honouring and dishonouring a note receivable.

The days' sales uncollected ratio measures a company's ability to manage its debt.

When a maker of a note honours a note,

Installment accounts receivable is another name for aging accounts receivable.

A contingent liability is an obligation to make a future payment if an uncertain future event occurs.

Compaq had net sales of $10,500 million. Its average account receivables were $1,750 million. Its accounts receivable turnover was 6.

Outdoors Unlimited had net sales for YR 1 of $285,000 and $575,000 for YR 2. The year-end balances of accounts receivable were $49,000 for YR 1 and $85,000 for YR 2. Calculate the days' sales uncollected at the end of each year (to the nearest day) and describe any changes in the apparent liquidity of the company's receivables.

On December 31 of the current year, Quick Draw Corporation had the following: Total sales for the current year of: $880,000, including $120,000 in cash sales. $\begin{array}{|l|r|}\hline \text { Accounts receivable balance at Dec. 31 of}&\$ 200,000.00\\\text { the curyent year:}\\\hline \text { Bad debts written off during the current } & \$ 2,800.00 \\\text { year: } & \\\hline \begin{array}{l}\text { Credit balance of Allowance for Doubtful } \\\text { Accounts at January } 1 \text { of the current year: }\end{array} & \underline{\$ 2,300.00} \\\hline\end{array}$ Prepare any adjusting entries required to record bad debts expense for the current year, assuming Quick Draw estimates bad debts will be: (a) About 1.5% of credit sales. (b) About 5% of accounts receivable.

The cash to be received at maturity on a $10,000, 8%, 90-day note receivable is

The aging of accounts receivable examines each account receivable to estimate the amount that is uncollectible.

Because pledged receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

The direct write-off method does not use an allowance for doubtful accounts account.