Financial Acct2 2nd Edition Godwin Test Bank

Financial ACCT2 2nd Edition Godwin
Test Bank
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Chapter 6--Receivables
Student: ___________________________________________________________________________
1. On January 2, Well Corporation sold merchandise with a gross price of $140,000 to Priority Corporation with
terms of 2/10, n/30. How much sales discounts would be recorded if payment was received on January 8?
A. $ 2,800
B. $ 0
C. $ 137,200
D. $ 140.000
2. Records Inc. received payment of a $20,000 accounts receivable within 10 days. The terms were 2/10, n/30.
Records would show a:
A. trade discount of $400.
B. trade allowance of $400.
C. sales discount of $400.
D. sales allowance of $400.
3. Leno, Inc.
Data for Leno, Inc. for 2012 are presented below.
Credit sales during the year $3,200,000

Accounts receivable--December 31, 2012 325,000
Allowance for bad debts--December 31, 2012 35,000
Bad debt expense for the year 20,000
Refer to the information given above for Leno, Inc. What amount will Leno show on its year-end balance sheet for the net realizable value of its
accounts receivable?
A. $305,000
B. $290,000
C. $280,000
D. $325,000
4. The following information was presented in the balance sheet of Diablo Company as of December 31, 2012:
Trade accounts receivable, net of allowance for doubtful

accounts of $255,000 $1,700,000
Which one of the following statements is true?
A. Diablo expects that $1,955,000 of accounts receivable will be collected after year end.
B. The balance in the Accounts Receivable account in Diablo's general ledger is $1,700,000.
C. The net realizable value Diablo's accounts receivable is $1,700,000.
D. Diablo expects to collect only $1,445,000 from its customers.
5. When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited
when:
A. a customer's account becomes past due.
B. an account becomes bad and is written off.
C. a sale is made.
D. the management estimates the amount of uncollectibles.
6. Which one of the following is an accurate description of the allowance for bad debts?
A. Contra account
B. Liability account
C. Revenue account
D. Expense account
7. If a company uses the direct write-off method of accounting for bad debts:
A. it establishes an estimate for the allowance for doubtful accounts.
B. it will record bad debt expense only when an account is determined to be uncollected.
C. it will reduce the accounts receivable account at the end of the accounting period for estimated uncollected
accounts.
D. total assets will stay the same, when an account is written off.
8. Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation of the entry to record the write-off of a customer's account balance?
A. Assets and liabilities decrease
B. Assets and equity decrease
C. Equity and liabilities decrease
D. Assets increase and equity decrease
9. If a company uses the allowance method of accounting for bad debts:

A. it uses a liability account called the Allowance for Bad Debts account.
B. it will record bad debts only when an account is determined to be uncollected.
C. it does not have to reduce accounts receivable when the account is written off.
D. it will report accounts receivable in the balance sheet at their net realizable value.
10. If a company uses the allowance method to account for doubtful accounts, when will the company's equity
decrease?
A. At the date a customer's account is written off
B. At the end of the accounting period when an adjusting entry for bad debts is recorded
C. At the date a customer's account is determined to be uncollected
D. When the accounts receivable amount becomes past due
11. The allowance for bad debts represents:

A. bad debt losses incurred in the current period.
B. the amount of uncollected accounts written off to date.
C. the difference between total sales made on credit and the amount collected from those credit sales.
D. the difference between the recorded value of accounts receivable and the net realizable value of accounts
receivable.
12. Digital Corporation

The following data concern Digital Corporation for 2012.

Refer to the information provided for Digital Corporation. What amount will Digital show on its year-end balance sheet for the net realizable value
of its accounts receivable?
A. $410,000
B. $295,000
C. $340,000
D. $355,000


Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital makes the adjustment to
record bad debt expense using the allowance method?
A. Assets increase and liabilities decrease
C. Assets increase and equity decreases
D. Assets decrease and equity increases

Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital writes off a bad debt under
the allowance method?
A. Assets decrease and equity increase
D. No effect on overall assets or equity
15. On December 1, 2012, Alex's Drug Store concluded that a customer's $325 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Alex's 2012 net
income and balance sheet totals assuming the allowance method is used to account for bad debts?
A. Decrease in net income; decrease in total assets
B. Increase in net income; no effect on total assets
C. No effect on net income; decrease in total assets
D. No effect on net income; no effect on total assets
16. Two methods of accounting for uncollectible accounts are the:

A. direct write-off method and the allowance method.
B. allowance method and the accrual method.
C. allowance method and the net realizable method.
D. direct write-off method and the accrual method.
17. One of the weaknesses of the direct write-off method is that it:
A. understates accounts receivable on the balance sheet.
B. violates the matching principle.
C. is too difficult to use for many companies.
D. is based on estimates.
18. If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited
to write off a customer's account as uncollectible?
A. Uncollectible accounts expense
B. Accounts receivable
C. Allowance for bad debts
D. Interest expense
19. Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with
revenue on the income statement?
A. The percentage-of-receivables approach
B. The percentage-of-sales approach
C. The percentage of accounts written off approach
D. The direct write off method
20. Which of the following statements is true regarding the two allowance approaches used to estimate bad
debts?
A. The percentage-of-sales approach takes into account the existing balance in the Accounts Receivable
account.
B. The direct write-off method takes into account the existing balance in the Allowance for Bad Debts account.
C. The percentage-of-receivables approach takes into account the existing balance in the Allowance for Bad
Debts account.
D. The direct write-off method does a better job of matching revenues and expenses than allowance method.
21. Which one of the approaches for the allowance procedure emphasizes the net realizable value of accounts
receivable on the balance sheet?
C. The percentage-of-accounts written off method
D. The direct write-off method
22. Ready Corporation's accounts receivable balance after posting net collections from customers for 2012 is
$190,000. Management feels that uncollected accounts should be based on the following aging of accounts
receivable and uncollected percentages. There are $120,000 that are 1 to 30 days past due at 3% and $70,000
that are 31 to 60 days past due at 8%. The net realizable value of the accounts receivable is:
A. $184,400
B. $186,400
C. $190,000
D. $180,800
23. Outlook Department Store's accounts receivable balance after posting net collections from customers for
2012 is $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts
receivable and estimate for uncollected account percentages as follows:
$90,000 Current at 2%
$50,000 1-30 days past due at 5%
$30,000 31-60 days past due at 10%
$10,000 60+ days past due at 25%
The net realizable value of the accounts receivable is:
A. $173,200.
B. $170,200.
C. $172,700.
D. $180,000.
24. Collision Corporation

Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Credit Sales $2,000,000

Sales returns and allowances 40,000
Accounts receivable (December 31, 2012) 610,000
Allowance for bad debts
(Before adjustment at December 31, 2012) 15,000
Estimated amount of uncollected accounts based on aging analysis 55,000
Refer to the information provided for Collision Corporation. If Collision estimates its bad debts at 2% of net credit sales, what amount will be
reported as bad debt expense for 2012?
A. $40,000
B. $39,200
C. $24,200
D. $25,000


Refer to the information presented for Collision Corporation. If Collision estimates its bad debt to be 2% of net credit sales, what will be the balance
in the Allowance for Bad Debts account after the adjustment for bad debts?
A. $15,000
B. $40,000
C. $39,200
D. $54,200

Refer to the information provided for Collision Corporation. If Collision uses the aging of accounts receivable approach to estimate its bad debts,
what amount will be reported as bad debt expense for 2012?
A. $40,000
B. $55,000
C. $15,000
D. $39,200


what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $610,000
B. $555,000
C. $595,000
D. $570,000
28. Profile Corporation

The following data concern Profile Corporation for 2012.
Accounts receivable--January 1, 2012 $ 250,000

Credit sales during 2012 1,000,000
Collections from credit customers during 2012 750,000
Allowance for bad debts--January 1, 2012 20,000
Estimated uncollected accounts based on an aging analysis 45,000
Refer to the information provided for Profile Corporation. If the aging method is used to estimate bad debts, what amount should be recorded as bad
debt expense for 2012?
A. $45,000
B. $20,000
C. $25,000
D. $15,000


Refer to the data provided for Profile Corporation. If the aging approach is used to estimate bad debts, find the balance in the Allowance for Bad
Debts after the bad debt expense adjustment for 2012.
A. $20,000
B. $15,000
C. $25,000
D. $45,000
30. Bolt Corporation

The following data concern Bolt Corporation for 2012.
Accounts receivable--January 1, 2012 $455,000

Credit sales during 2012 900,000
Allowance for bad debts before adjustment for the year 2,100
Refer to the information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad
A. $ 2,100
B. $27,100
C. $29,200
D. $31,300

Refer to information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance
for Bad Debts account be after the bad debts adjustment?
A. $ 2,100
B. $31,100
C. $29,200
D. $27,100
32. Aspen Corporation

Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales $2,100,000

Sales returns 150,000
Gross accounts receivable (December 31, 2012) 420,000
Estimated amount of uncollected accounts based on an aging analysis 75,000
Refer to the information provided for Aspen Corporation. If Aspen estimates its bad debts at 4% of net credit sales, what amount will be reported as
bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $84,000


Refer to the information provided for Aspen Corporation. If Aspen uses 4% of net credit sales to estimate its bad debts, what will be the balance in
the Allowance for Bad Debts account after the adjustment for bad debts?
A. $ 50,000
B. $103,000
C. $ 78,000
D. $ 75,000


Refer to information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what amount
will be reported as bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $53,000


Refer to the information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what will
be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $343,000
B. $345,000
C. $420,000
D. $395,000

Refer to data provided for Aspen Corporation. If Aspen estimates its bad debts at 8% of accounts receivable, what amount will be reported as bad
A. $75,000
B. $25,000
C. $ 8,600
D. $33,600


Refer to the data provided for Aspen Corporation. If Aspen uses 8% of accounts receivables to estimate its bad debts, what will be the balance in the
Allowance for Bad Debts account after the adjustment for bad debts?
A. $ 33,600
B. $ 25,000
C. $ 8,600
D. $ 50,000
38. Tanning Company uses the percentage of receivables method for recording bad debts expense. The accounts
receivable balance is $300,000 and credit sales are $1,000,000. An aging of accounts receivable shows that 5%
will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Bad Debts
account has a credit balance of $2,000 before the adjustment?
A. Bad Debts Expense 13,000
Allowance for Bad Debts 13,000
B. Bad Debts Expense 15,000
C. Bad Debts Expense 13,000
Accounts receivable 13,000
D. Bad Debts Expense 15,000
39. Union Corporation reported net credit sales of $2,500,000 and cost of goods sold of $1,800,000 for 2012. Its
beginning balance of accounts receivable was $350,000. The accounts receivable balance decreased by $50,000
during 2012. Rounded to two decimal places, what is Union's accounts receivable turnover ratio for 2012?
A. 7.69
B. 7.14
C. 8.33
D. 11.03
40. During 2012, the accounts receivable turnover ratio for Upward Company increased from 10 to 15 times per
year. Which one of the following statements is the most likely explanation for the change?
A. The company's credit department has followed up with customers whose account balances are past due in
order to generate quicker collections.
B. The company has decreased sales to its most credit worthy customers.
C. The company has increased the amount of time customers have to pay their accounts before they are past
due.
D. The company has extended credit to more risky customers in order to increase the accounts receivable
turnover ratio.
41. Bradford Corporation reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012.
On January 1, 2012, accounts receivable was $450,000. Amounts owed by customers increased by $50,000
during 2012. Rounding to two decimal places, what is Bradford's receivable turnover ratio for 2012?
A. 5.47
B. 6.40
C. 6.74
D. 7.11
42. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the receivable turnover ratio:
Net sales $450,000 Accounts receivable, 1/31/2011 $175,000

Operating income $120,000 Accounts receivable, 1/31/2012 $125,000
Net income $100,000
A. 3
B. 0.8
C. 3.6
D. 2.57
Calculate the days-in-receivables ratio:

Net income $100,000
A. 120.00
B. 121.66
C. 112.66
D. 188.33
during 2012. Rounding the intermediate calculation to two decimal places, what is Bradford's
days-in-receivables ratio for 2012?
A. 52.94
B. 53.67
C. 53.41
D. 54.15
Calculate the allowance ratio:
Net sales $450,000 Accounts receivable, net $175,000

Operating income $120,000 Allowance for bad debts $ 25,000
Net income $100,000
A. 14.28%
B. 12.3%
C. 12.5%
D. 36.36%
46. Bradford Corporation reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012.
Allowance for bad debts was $40,000, ending 2012. Rounding to two decimal places, what is Bradford's
allowance ratio for 2012?
A. 10.53%
B. 9.52%
C. 1.54%
D. 1.50%
47. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012 2011
Net accounts receivable $ 55,500 $ 43,200
Allowance for bad debts 2,220 1,700
Total assets 462,500 720,000
Cash flow from operations 314,500 316,800
Net sales 370,000 360,000
Cost of goods sold 185,000 190,000
Capital expenditures 50,000 25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet?
A. Net sales increased by $2,300 or 10.0% during 2012.

B. Net accounts receivable increased $12,300 or 28.47% during 2012.
C. Net accounts receivable is 12.0% of total assets in 2012.
D. The total assets is $462,500 in 2011.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's income
statement?
B. Net sales increased by $2,300 or 10.0% during 2012.
C. Net sales is $360,000 in 2012.
D. Net sales decreased by $2,300 or 10.0% during 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in
2012?
A. Net accounts receivable increased by $12,300 or 28.47% during 2012.

B. Net accounts receivable decreased by $12,300 or 28.47% during 2012.
C. Net accounts receivable is 6% of total assets in 2012.
D. Net accounts receivable is 12% of total assets in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's income statement
in 2012?

B. Net sales is $360,000 in 2012.
C. Capital expenditures is 100% of total assets in 2012.
D. Cost of goods sold is 50% of net sales in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s receivables turnover ratio in 2012?
A. The receivables turnover is 7.79 in 2012.
B. The receivables turnover is 6.67 in 2012.
C. The receivables turnover is 8.56 in 2012.
D. The receivables turnover is 7.21 in 2012.
2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s days-in-receivables ratio in 2012?
A. The days-in-receivables ratio is 50.62 in 2012.
B. The days-in-receivables ratio is 54.75 in 2012.
C. The days-in-receivables ratio is 42.62 in 2012.
D. The days-in-receivables ratio is 60.04 in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s allowance ratio in 2012?
A. The allowance ratio is 3.29% in 2012.
B. The allowance ratio is 3.85% in 2012.
C. The allowance ratio is 4.89% in 2012.
D. The allowance ratio is 2.97% in 2012.
54. Receivables turnover ratio measures:

A. a company’s ability to collect its accounts receivables.
B. a comparison of allowance account to receivables.
C. the fair market value of accounts receivable.
D. the efficiency of the accounts payable function.
55. The days-in-receivables ratio:
A. is an estimate of the length of time the receivables have been outstanding.
B. measures the cash discount period for credit sales.
C. is net credit sales divided by average receivables.
D. is not meaningful and therefore is not used.
56. The party to a promissory note who will pay the interest and principal is called the:
A. lender.
B. maker of the note.
C. payee of the note.
D. recipient of the note.
57. How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
B. The promissory note will be recorded as a liability
C. The promissory note will be recorded as an equity
D. The promissory note will be recorded as an expense
58. The total amount of interest for one year calculated annually on a $18,000 promissory note payable for 3
years at 11% is:
A. $1,980.
B. $5,940.
C. $3,960.
D. $990.
59. Nadal Company

On October 1, 2012, Nadal Company received a $50,000 promissory note from Borg Company. The annual
interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
Refer to the information provided for Nadal Company. An adjusting entry for Nadal's year end, December 31,
2012 needed to:
A. increase interest revenue by $2,250
B. increase notes receivable by $750
C. increase interest receivable by $750
D. increase notes receivable by $2,250
60. Nadal Company
Refer to the information provided for Nadal Company. The effect on Nadal's financial statements on
September 30, 2013, is as follows:
A. Assets and equity increase
B. No net change in equity
C. Assets and liabilities increase
D. No net change in assets
61. Metal Company

Metal Company sold merchandise to Steel Corporation on December 1, 2012, for $150,000, and accepted a
promissory note for payment in the same amount. The note has a term of three months and an annual interest
rate of 8%. Metal's accounting period ends on December 31.
Refer to the data provided for Metal Company. What is the maturity date of the note?
A. December 31, 2012
B. January 31, 2013
C. February 28, 2013
D. March 31, 2013
62. Metal Company

Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on
December 31, 2012?
A. $ -0-
B. $ 1,000
C. $12,000
D. $11,000
63. Metal Company
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on the
maturity date of the note?
A. $ -0-
B. $1,000
C. $2,000
D. $3,000
64. Peach Tree Farm

Peach Tree Farm received a promissory note from a customer on March 1, 2012. The principal amount of the
note is $20,000; the terms are 3 months and 9% annual interest.
Refer to the information for Peach Tree Farm. What is the total amount of interest that Peach Tree Farm will
receive when the note is collected?
A. $ 300
B. $ 150
C. $ 450
D. $1,800
65. Peach Tree Farm

Refer to the information for Peach Tree Farm. At the maturity date, the customer pays the amount due for the
note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that
none of the interest had already been recognized?
A. Decrease cash and notes receivable by $20,000
B. Increase cash by $20,450, increase interest revenue by $450, and decrease notes receivable by $20,000
C. Increase cash by $20,450, increase notes receivable by $20,000, and increase interest revenue by $450
D. No entry is required; the customer pays the amount due to Peach Tree Farm.
66. Lubing Company
Lubing Company sold merchandise to Lewing Corporation. on December 1, 2012, for $100,000. Lubing
accepted a promissory note from Lewing Corporation for $100,000. The note has a term of 6 months and an
annual interest rate of 9%. Lubing's accounting period ends on December 31, 2012.
Refer to the information provided for Lubing Company. What amount should Lubing recognize as interest
revenue on December 31, 2012?
A. $ -0-
B. $ 750
C. $1,500
D. $9,000
67. Lubing Company

revenue on the maturity date of the note?
A. $ -0-
B. $4,500
C. $3,750
D. $9,000
68. Land Shoes

Land Shoes received a promissory note from a customer on July 1, 2012. The face value of the note is $45,000;
the terms are 12 months and 10% annual interest.
Refer to the information provided for Land Shoes. How much interest revenue will Land Shoes recognize for
the year ended December 31, 2012?
A. $ 0
B. $9,000
C. $2,250
D. $4,500
69. Land Shoes
Refer to the information provided for Land Shoes. At the maturity date, the customer pays for the note and
interest. Land Shoes made the proper adjustment at the end of December 2012 for interest. The effect of
recognizing the transaction on the maturity date is:
A. a decrease to cash.
B. a decrease to interest receivable.
C. an increase to interest receivable.
D. a decrease to notes receivable.
70. On March 1, 2012, Mack Corporation accepted cash of $10,000 and a six-month, $80,000 interest-bearing
note from Gee, Inc., as settlement of an account receivable. Mack has a fiscal year-end of July 31st and Gee
paid the principle and the interest on time. Select the appropriate journal entry that reflects the acceptance of
the note on March 1, 2012?
A. Cash 10,000
Notes Receivable 80,000
Accounts Receivable 90,000
B. Notes Receivable 90,000
C. Accounts Receivable 90,000
D. Accounts Receivable 10,000
Cash 90,000
71. Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note.
Harper Company prepares financial statements on March 31. What adjusting entry Harper should make before
the financial statements can be prepared?
A. Cash 200
Interest Revenue 200
B. Interest Receivable 800
C. Interest Receivable 200
D. Note Receivable 40,000
Cash 40,000
72. What should a company do to improve its accounts receivable turnover ratio?
A. Lower its selling prices.
B. Increase its sales force.
C. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
D. Reduce the number of employees working in the credit department.
73. What is the distinguishing characteristic between accounts receivable and notes receivable?
A. Accounts receivable are usually current assets while notes receivable are usually long-term assets.
B. Accounts receivable require payment of interest while notes receivable does not have payment of interest.
C. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable
result from credit sale transactions for service companies.
D. Notes receivable generally specify an interest rate and a maturity date at which any interest and principle
must be repaid.
74. On June 3, 2012, Irvine Corporation sells $45,000 of merchandise to a customer on account with terms of
2/10, n/30.
Prepare the journal entries to:
A) Record the sale using the gross method.
B) Assume the payment is received on June 10, 2012.
C) Assume payment is not received until June 21, 2012.
75. The comparative financial statements for the years ended December 31, 2012 and 2011, for Rimm Company
reported the following information.
Balance 2012 2011

Sheet:
Cash and cash equivalents $87,000 $71,600
Accounts receivables, less allowance for doubtful
accounts of $90 (2012) and $82 (2011) 3,800 2,500
Income
Stateme
nt:
Net sales for the year $9,700 $8,800
Net income for the year 920 1,050
Answer these questions concerning Rimm Company's receivables:
A) What is the gross amount of accounts receivable for Rimm at December 31, 2012? Why is this amount different than the amount of
receivables shown in the 2012 column of the balance sheet?
B) What is the net realizable value of accounts receivable for Rimm at December 31, 2012? What does this amount represent?
76. Hammer Associates
The following information concerns Hammer Associates at the end of 2012.

Allowance for bad debts--December 31, 2012
(Before adjustment for bad debts) 25,000
Estimated uncollected accounts
(per aging schedule at December 31, 2012) 45,000
Refer to the information provided for Hammer Associates. If bad debts are estimated at 1% of net credit sales, how much will Hammer report as bad
debts expense for 2012?


Refer to the information provided for Hammer Associates. If the aging approach is used to estimate bad debts, how much bad debts expense will
Hammer report for 2012?


Refer to the information provided for Hammer Associates. Determine the effect on Hammer's accounting equation of the year-end adjustment of bad
debts using the aging approach.
Assets = Liabilities +Equity


Refer to the information provided for Hammer Associates. If the aging approach is used to estimate bad debts, how much is the net realizable value
of the accounts receivable at December 31, 2012?
80. The following information is available for Spin Corporation for the year ending December 31, 2012:
Net sales $ 10,000,000 Accounts receivable 12/31/11 $2,500,000

Gross profit 3,000,000 Accounts receivable 12/31/12 2,000,000
Operating income 1,200,000 Total assets 7,500,000
Net income 800,000
A) Compute the horizontal analysis for accounts receivable 2012.
B) Compute the vertical analysis for accounts receivable for 2012.
C) Compute the receivable turnover for 2012.
D) Compute the days-in-receivables ratio for 2012 (Round intermediate calculation to two decimals.).
81. On October 1, 2012, Data Company sold merchandise to a customer and received a 9%, 4-month
promissory note with a principal amount of $80,000.
A) Identify the maturity date of the note.
B) How much total interest revenue will Data Company earn over the term of the note?
C) How much interest revenue will Data Company recognize during 2012?
82. Tempe Corporation
On May 1, 2012, Tempe Corporation sold merchandise to a customer and received a 8%, 6-month note with a
principal amount of $100,000. Tempe's year end is December 31.
Refer to the information provided for Tempe Corporation. Identify the maturity date of the note.

Refer to the information provided for Tempe Corporation. How much total interest revenue will Tempe
Corporation recognize over the term of the note?
84. Harson Company received a 12%, 6-month promissory note with a principal amount of $10,000 from
Samson Company, for the sale of merchandise on December 1, 2012.
A) How much interest revenue will Harson recognize as of December 31, 2012?
B) How much interest revenue will Harson recognize in 2013?
C) Determine the total amount of cash Harson will collect on the date of the note's maturity.
85. Proctor Corporation sells equipment for $80,000 to Gamble Incorporated on January 1, 2012 in exchange
for note bearing 12 percent interest.
Prepare the following journal entries in the books of Proctor Corporation:
A) Record the sale on January 1, 2012.
B) Repayment on December 31, 2012.
C) Accrue interest on December 31, 2012, and repayment on March 31, 2013.
86. Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of
these credit sales will default. During 2012 a customer defaults on a $6,000 balance related to goods purchased
during 2011. Austin's accounts receivable and allowance for bad debts balances at the end of the year were
$50,000 and $7,000 (credit) respectively.
Prepare journal entries to record:
A) Write off the defaulted $6,000 balance.
B) Adjusting entry to record the bad debt expense for 2012.
C) What is the net accounts receivable balance at the end of the year?
87. Monkey Business Company
The Monkey Business Company sells their merchandise only on credit. The following data are available at
December 31, 2012.
Sales $411,000
Accounts receivable at January 1, 2012 89,000
Allowance for bad debts at January 1, 2012 4,100
Cash collections during 2012 385,100
Refer to the information provided for Monkey Business Company. The firm estimates that bad debts could be 2% of net sales.
A) What amount will Monkey Business recognize as bad debts expense for the year?
B) Assume that the company has a balance of accounts receivable of $108,900, and an allowance for bad debts of $820 before the
adjustment. What will be the net realizable value once the adjustment from (Part A) is made?

December 31, 2012.
Sales $411,000
Refer to the information provided for Monkey Business Company. Assume that the company estimates bad debts using the aging method. The aging
schedule indicates that accounts receivable of $11,500 will be uncollected at the end of the year.
A) What amount will Monkey Business Company recognize as bad debt expense for the year?
B) If the ending balance of accounts receivables is $65,200, what is the net realizable value of accounts receivable reported on
December 31, 2012?
89. What is net realizable value?
90. What is the purpose of an aging schedule for accounts receivable?
91. Waltz Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/30.
What does this ratio tell you about Waltz Company?
92. A sales invoice that bears the notation 2/10 means ____________________.
93. To encourage prompt payment, sellers offer a(n) ____________________.
94. According to the ____________________ principle, bad debt expense must be recorded in the period
related to the sale.
95. The method in which companies use two entries to account for bad debt expense- one to estimate the
expense and a second to write off receivables is the ____________________.
96. A(n) ____________________ categorizes the various accounts receivable amounts by their ages.
97. ____________________ are receivables that generally specify an interest rate and a maturity date at which
any interest and principal must be repaid.
Chapter 6--Receivables Key
1. On January 2, Well Corporation sold merchandise with a gross price of $140,000 to Priority Corporation with
terms of 2/10, n/30. How much sales discounts would be recorded if payment was received on January 8?
A. $ 2,800
B. $ 0
C. $ 137,200
D. $ 140.000
2. Records Inc. received payment of a $20,000 accounts receivable within 10 days. The terms were 2/10, n/30.
Records would show a:
A. trade discount of $400.
B. trade allowance of $400.
C. sales discount of $400.
D. sales allowance of $400.
3. Leno, Inc.
Data for Leno, Inc. for 2012 are presented below.

Refer to the information given above for Leno, Inc. What amount will Leno show on its year-end balance sheet for the net realizable value of its
accounts receivable?
A. $305,000
B. $290,000
C. $280,000
D. $325,000
4. The following information was presented in the balance sheet of Diablo Company as of December 31, 2012:
Trade accounts receivable, net of allowance for doubtful

accounts of $255,000 $1,700,000
Which one of the following statements is true?
A. Diablo expects that $1,955,000 of accounts receivable will be collected after year end.
B. The balance in the Accounts Receivable account in Diablo's general ledger is $1,700,000.
C. The net realizable value Diablo's accounts receivable is $1,700,000.
D. Diablo expects to collect only $1,445,000 from its customers.
5. When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited
when:
A. a customer's account becomes past due.
B. an account becomes bad and is written off.
C. a sale is made.
D. the management estimates the amount of uncollectibles.
6. Which one of the following is an accurate description of the allowance for bad debts?
A. Contra account
B. Liability account
C. Revenue account
D. Expense account
7. If a company uses the direct write-off method of accounting for bad debts:
A. it establishes an estimate for the allowance for doubtful accounts.
B. it will record bad debt expense only when an account is determined to be uncollected.
C. it will reduce the accounts receivable account at the end of the accounting period for estimated uncollected
accounts.
D. total assets will stay the same, when an account is written off.
8. Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation of the entry to record the write-off of a customer's account balance?
A. Assets and liabilities decrease
C. Equity and liabilities decrease
D. Assets increase and equity decrease
9. If a company uses the allowance method of accounting for bad debts:

A. it uses a liability account called the Allowance for Bad Debts account.
B. it will record bad debts only when an account is determined to be uncollected.
C. it does not have to reduce accounts receivable when the account is written off.
D. it will report accounts receivable in the balance sheet at their net realizable value.
10. If a company uses the allowance method to account for doubtful accounts, when will the company's equity
decrease?
A. At the date a customer's account is written off
B. At the end of the accounting period when an adjusting entry for bad debts is recorded
C. At the date a customer's account is determined to be uncollected
D. When the accounts receivable amount becomes past due
11. The allowance for bad debts represents:

A. bad debt losses incurred in the current period.
B. the amount of uncollected accounts written off to date.
C. the difference between total sales made on credit and the amount collected from those credit sales.
D. the difference between the recorded value of accounts receivable and the net realizable value of accounts
receivable.


Refer to the information provided for Digital Corporation. What amount will Digital show on its year-end balance sheet for the net realizable value
of its accounts receivable?
A. $410,000
B. $295,000
C. $340,000
D. $355,000


Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital makes the adjustment to
record bad debt expense using the allowance method?
A. Assets increase and liabilities decrease
D. Assets decrease and equity increases

Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital writes off a bad debt under
the allowance method?
A. Assets decrease and equity increase
D. No effect on overall assets or equity
15. On December 1, 2012, Alex's Drug Store concluded that a customer's $325 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Alex's 2012 net
income and balance sheet totals assuming the allowance method is used to account for bad debts?
A. Decrease in net income; decrease in total assets
B. Increase in net income; no effect on total assets
C. No effect on net income; decrease in total assets
D. No effect on net income; no effect on total assets
16. Two methods of accounting for uncollectible accounts are the:

A. direct write-off method and the allowance method.
B. allowance method and the accrual method.
C. allowance method and the net realizable method.
D. direct write-off method and the accrual method.
17. One of the weaknesses of the direct write-off method is that it:
A. understates accounts receivable on the balance sheet.
B. violates the matching principle.
C. is too difficult to use for many companies.
D. is based on estimates.
18. If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited
to write off a customer's account as uncollectible?
A. Uncollectible accounts expense
B. Accounts receivable
C. Allowance for bad debts
D. Interest expense
19. Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with
revenue on the income statement?
C. The percentage of accounts written off approach
D. The direct write off method
20. Which of the following statements is true regarding the two allowance approaches used to estimate bad
debts?
A. The percentage-of-sales approach takes into account the existing balance in the Accounts Receivable
account.
B. The direct write-off method takes into account the existing balance in the Allowance for Bad Debts account.
C. The percentage-of-receivables approach takes into account the existing balance in the Allowance for Bad
Debts account.
D. The direct write-off method does a better job of matching revenues and expenses than allowance method.
21. Which one of the approaches for the allowance procedure emphasizes the net realizable value of accounts
receivable on the balance sheet?
C. The percentage-of-accounts written off method
D. The direct write-off method
22. Ready Corporation's accounts receivable balance after posting net collections from customers for 2012 is
$190,000. Management feels that uncollected accounts should be based on the following aging of accounts
receivable and uncollected percentages. There are $120,000 that are 1 to 30 days past due at 3% and $70,000
that are 31 to 60 days past due at 8%. The net realizable value of the accounts receivable is:
A. $184,400
B. $186,400
C. $190,000
D. $180,800
23. Outlook Department Store's accounts receivable balance after posting net collections from customers for
2012 is $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts
receivable and estimate for uncollected account percentages as follows:
$90,000 Current at 2%
$50,000 1-30 days past due at 5%
$30,000 31-60 days past due at 10%
$10,000 60+ days past due at 25%
The net realizable value of the accounts receivable is:
A. $173,200.
B. $170,200.
C. $172,700.
D. $180,000.


Refer to the information provided for Collision Corporation. If Collision estimates its bad debts at 2% of net credit sales, what amount will be
reported as bad debt expense for 2012?
A. $40,000
B. $39,200
C. $24,200
D. $25,000


Refer to the information presented for Collision Corporation. If Collision estimates its bad debt to be 2% of net credit sales, what will be the balance
in the Allowance for Bad Debts account after the adjustment for bad debts?
A. $15,000
B. $40,000
C. $39,200
D. $54,200

what amount will be reported as bad debt expense for 2012?
A. $40,000
B. $55,000
C. $15,000
D. $39,200


what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $610,000
B. $555,000
C. $595,000
D. $570,000


Refer to the information provided for Profile Corporation. If the aging method is used to estimate bad debts, what amount should be recorded as bad
A. $45,000
B. $20,000
C. $25,000
D. $15,000


Refer to the data provided for Profile Corporation. If the aging approach is used to estimate bad debts, find the balance in the Allowance for Bad
Debts after the bad debt expense adjustment for 2012.
A. $20,000
B. $15,000
C. $25,000
D. $45,000


Refer to the information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad
A. $ 2,100
B. $27,100
C. $29,200
D. $31,300

Refer to information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance
for Bad Debts account be after the bad debts adjustment?
A. $ 2,100
B. $31,100
C. $29,200
D. $27,100


Refer to the information provided for Aspen Corporation. If Aspen estimates its bad debts at 4% of net credit sales, what amount will be reported as
bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $84,000


Refer to the information provided for Aspen Corporation. If Aspen uses 4% of net credit sales to estimate its bad debts, what will be the balance in
the Allowance for Bad Debts account after the adjustment for bad debts?
A. $ 50,000
B. $103,000
C. $ 78,000
D. $ 75,000


Refer to information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what amount
will be reported as bad debt expense for 2012?
A. $50,000
B. $75,000
C. $78,000
D. $53,000


Refer to the information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what will
be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A. $343,000
B. $345,000
C. $420,000
D. $395,000

Refer to data provided for Aspen Corporation. If Aspen estimates its bad debts at 8% of accounts receivable, what amount will be reported as bad
A. $75,000
B. $25,000
C. $ 8,600
D. $33,600


Refer to the data provided for Aspen Corporation. If Aspen uses 8% of accounts receivables to estimate its bad debts, what will be the balance in the
Allowance for Bad Debts account after the adjustment for bad debts?
A. $ 33,600
B. $ 25,000
C. $ 8,600
D. $ 50,000
38. Tanning Company uses the percentage of receivables method for recording bad debts expense. The accounts
receivable balance is $300,000 and credit sales are $1,000,000. An aging of accounts receivable shows that 5%
will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Bad Debts
account has a credit balance of $2,000 before the adjustment?
A. Bad Debts Expense 13,000
B. Bad Debts Expense 15,000
C. Bad Debts Expense 13,000
D. Bad Debts Expense 15,000
39. Union Corporation reported net credit sales of $2,500,000 and cost of goods sold of $1,800,000 for 2012. Its
beginning balance of accounts receivable was $350,000. The accounts receivable balance decreased by $50,000
during 2012. Rounded to two decimal places, what is Union's accounts receivable turnover ratio for 2012?
A. 7.69
B. 7.14
C. 8.33
D. 11.03
40. During 2012, the accounts receivable turnover ratio for Upward Company increased from 10 to 15 times per
year. Which one of the following statements is the most likely explanation for the change?
A. The company's credit department has followed up with customers whose account balances are past due in
order to generate quicker collections.
B. The company has decreased sales to its most credit worthy customers.
C. The company has increased the amount of time customers have to pay their accounts before they are past
due.
D. The company has extended credit to more risky customers in order to increase the accounts receivable
turnover ratio.
during 2012. Rounding to two decimal places, what is Bradford's receivable turnover ratio for 2012?
A. 5.47
B. 6.40
C. 6.74
D. 7.11
Calculate the receivable turnover ratio:

Net income $100,000
A. 3
B. 0.8
C. 3.6
D. 2.57
Calculate the days-in-receivables ratio:

Net income $100,000
A. 120.00
B. 121.66
C. 112.66
D. 188.33
during 2012. Rounding the intermediate calculation to two decimal places, what is Bradford's
days-in-receivables ratio for 2012?
A. 52.94
B. 53.67
C. 53.41
D. 54.15
Calculate the allowance ratio:
Net sales $450,000 Accounts receivable, net $175,000

Operating income $120,000 Allowance for bad debts $ 25,000
Net income $100,000
A. 14.28%
B. 12.3%
C. 12.5%
D. 36.36%
46. Bradford Corporation reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012.
Allowance for bad debts was $40,000, ending 2012. Rounding to two decimal places, what is Bradford's
allowance ratio for 2012?
A. 10.53%
B. 9.52%
C. 1.54%
D. 1.50%
2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet?

B. Net accounts receivable increased $12,300 or 28.47% during 2012.
C. Net accounts receivable is 12.0% of total assets in 2012.
D. The total assets is $462,500 in 2011.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's income
statement?
B. Net sales increased by $2,300 or 10.0% during 2012.
C. Net sales is $360,000 in 2012.
D. Net sales decreased by $2,300 or 10.0% during 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in
2012?
A. Net accounts receivable increased by $12,300 or 28.47% during 2012.

B. Net accounts receivable decreased by $12,300 or 28.47% during 2012.
C. Net accounts receivable is 6% of total assets in 2012.
D. Net accounts receivable is 12% of total assets in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max's income statement
in 2012?

B. Net sales is $360,000 in 2012.
C. Capital expenditures is 100% of total assets in 2012.
D. Cost of goods sold is 50% of net sales in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s receivables turnover ratio in 2012?
A. The receivables turnover is 7.79 in 2012.
B. The receivables turnover is 6.67 in 2012.
C. The receivables turnover is 8.56 in 2012.
D. The receivables turnover is 7.21 in 2012.
2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s days-in-receivables ratio in 2012?
A. The days-in-receivables ratio is 50.62 in 2012.
B. The days-in-receivables ratio is 54.75 in 2012.
C. The days-in-receivables ratio is 42.62 in 2012.
D. The days-in-receivables ratio is 60.04 in 2012.

2012 2011
Total assets 462,500 720,000
Net sales 370,000 360,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s allowance ratio in 2012?
A. The allowance ratio is 3.29% in 2012.
B. The allowance ratio is 3.85% in 2012.
C. The allowance ratio is 4.89% in 2012.
D. The allowance ratio is 2.97% in 2012.
54. Receivables turnover ratio measures:

A. a company’s ability to collect its accounts receivables.
B. a comparison of allowance account to receivables.
C. the fair market value of accounts receivable.
D. the efficiency of the accounts payable function.
55. The days-in-receivables ratio:
A. is an estimate of the length of time the receivables have been outstanding.
B. measures the cash discount period for credit sales.
C. is net credit sales divided by average receivables.
D. is not meaningful and therefore is not used.
56. The party to a promissory note who will pay the interest and principal is called the:
A. lender.
B. maker of the note.
C. payee of the note.
D. recipient of the note.
57. How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
B. The promissory note will be recorded as a liability
C. The promissory note will be recorded as an equity
D. The promissory note will be recorded as an expense
58. The total amount of interest for one year calculated annually on a $18,000 promissory note payable for 3
years at 11% is:
A. $1,980.
B. $5,940.
C. $3,960.
D. $990.
59. Nadal Company

Refer to the information provided for Nadal Company. An adjusting entry for Nadal's year end, December 31,
2012 needed to:
A. increase interest revenue by $2,250
B. increase notes receivable by $750
C. increase interest receivable by $750
D. increase notes receivable by $2,250
60. Nadal Company
Refer to the information provided for Nadal Company. The effect on Nadal's financial statements on
September 30, 2013, is as follows:
A. Assets and equity increase
B. No net change in equity
C. Assets and liabilities increase
D. No net change in assets
61. Metal Company

Refer to the data provided for Metal Company. What is the maturity date of the note?
A. December 31, 2012
B. January 31, 2013
C. February 28, 2013
D. March 31, 2013
62. Metal Company

Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on
December 31, 2012?
A. $ -0-
B. $ 1,000
C. $12,000
D. $11,000
63. Metal Company
Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on the
maturity date of the note?
A. $ -0-
B. $1,000
C. $2,000
D. $3,000
64. Peach Tree Farm

Refer to the information for Peach Tree Farm. What is the total amount of interest that Peach Tree Farm will
receive when the note is collected?
A. $ 300
B. $ 150
C. $ 450
D. $1,800
65. Peach Tree Farm

Refer to the information for Peach Tree Farm. At the maturity date, the customer pays the amount due for the
note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that
none of the interest had already been recognized?
A. Decrease cash and notes receivable by $20,000
B. Increase cash by $20,450, increase interest revenue by $450, and decrease notes receivable by $20,000
C. Increase cash by $20,450, increase notes receivable by $20,000, and increase interest revenue by $450
D. No entry is required; the customer pays the amount due to Peach Tree Farm.
66. Lubing Company
revenue on December 31, 2012?
A. $ -0-
B. $ 750
C. $1,500
D. $9,000
67. Lubing Company

revenue on the maturity date of the note?
A. $ -0-
B. $4,500
C. $3,750
D. $9,000
68. Land Shoes

Refer to the information provided for Land Shoes. How much interest revenue will Land Shoes recognize for
the year ended December 31, 2012?
A. $ 0
B. $9,000
C. $2,250
D. $4,500
69. Land Shoes
Refer to the information provided for Land Shoes. At the maturity date, the customer pays for the note and
interest. Land Shoes made the proper adjustment at the end of December 2012 for interest. The effect of
recognizing the transaction on the maturity date is:
A. a decrease to cash.
B. a decrease to interest receivable.
C. an increase to interest receivable.
D. a decrease to notes receivable.
70. On March 1, 2012, Mack Corporation accepted cash of $10,000 and a six-month, $80,000 interest-bearing
note from Gee, Inc., as settlement of an account receivable. Mack has a fiscal year-end of July 31st and Gee
paid the principle and the interest on time. Select the appropriate journal entry that reflects the acceptance of
the note on March 1, 2012?
A. Cash 10,000
B. Notes Receivable 90,000
C. Accounts Receivable 90,000
D. Accounts Receivable 10,000
Cash 90,000
71. Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note.
Harper Company prepares financial statements on March 31. What adjusting entry Harper should make before
the financial statements can be prepared?
A. Cash 200
B. Interest Receivable 800
C. Interest Receivable 200
D. Note Receivable 40,000
Cash 40,000
72. What should a company do to improve its accounts receivable turnover ratio?
A. Lower its selling prices.
B. Increase its sales force.
C. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
D. Reduce the number of employees working in the credit department.
73. What is the distinguishing characteristic between accounts receivable and notes receivable?
A. Accounts receivable are usually current assets while notes receivable are usually long-term assets.
B. Accounts receivable require payment of interest while notes receivable does not have payment of interest.
C. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable
result from credit sale transactions for service companies.
D. Notes receivable generally specify an interest rate and a maturity date at which any interest and principle
must be repaid.
74. On June 3, 2012, Irvine Corporation sells $45,000 of merchandise to a customer on account with terms of
2/10, n/30.
Prepare the journal entries to:
A) Record the sale using the gross method.
B) Assume the payment is received on June 10, 2012.
C) Assume payment is not received until June 21, 2012.
Debit Credit
A) 6/03 Accoun 45,000
ts
Receiv
able
Sales Revenue 45,000
B) 6/10 Cash 44,100

Sales 900
Discou
nts
($45,00
0 ´ 2%)
C) 6/21 Cash 45,000

75. The comparative financial statements for the years ended December 31, 2012 and 2011, for Rimm Company
reported the following information.
Balance 2012 2011

Sheet:
Cash and cash equivalents $87,000 $71,600
Accounts receivables, less allowance for doubtful
accounts of $90 (2012) and $82 (2011) 3,800 2,500
Income
Stateme
nt:
Net sales for the year $9,700 $8,800
Net income for the year 920 1,050
Answer these questions concerning Rimm Company's receivables:
A) What is the gross amount of accounts receivable for Rimm at December 31, 2012? Why is this amount different than the amount of
receivables shown in the 2012 column of the balance sheet?
B) What is the net realizable value of accounts receivable for Rimm at December 31, 2012? What does this amount represent?
A) $3,800 + $90 = $3,890. It is different because, unlike for the balance sheet presentation, it has not been adjusted for the estimated
amount of receivables that are deemed uncollected.
B) $3,800. This is the amount that Rimm expects to collect.


Refer to the information provided for Hammer Associates. If bad debts are estimated at 1% of net credit sales, how much will Hammer report as bad
debts expense for 2012?
$11,500 = ($1,200,000 - $50,000) ´ 1%


Refer to the information provided for Hammer Associates. If the aging approach is used to estimate bad debts, how much bad debts expense will
Hammer report for 2012?
$20,000 = $45,000 (Desired balance) - 25,000 (Existing balance)


Refer to the information provided for Hammer Associates. Determine the effect on Hammer's accounting equation of the year-end adjustment of bad
debts using the aging approach.
Assets = Liabilities +Equity
Assets = Liabilities + Equity

Allow. for bad debts (20,000) Bad debt expense (20,000)

Refer to the information provided for Hammer Associates. If the aging approach is used to estimate bad debts, how much is the net realizable value
of the accounts receivable at December 31, 2012?
$235,000 = $280,000 (Accounts receivable) - 45,000 (Allowance for bad debts)
80. The following information is available for Spin Corporation for the year ending December 31, 2012:
Net sales $ 10,000,000 Accounts receivable 12/31/11 $2,500,000

Gross profit 3,000,000 Accounts receivable 12/31/12 2,000,000
Operating income 1,200,000 Total assets 7,500,000
Net income 800,000
A) Compute the horizontal analysis for accounts receivable 2012.
B) Compute the vertical analysis for accounts receivable for 2012.
C) Compute the receivable turnover for 2012.
D) Compute the days-in-receivables ratio for 2012 (Round intermediate calculation to two decimals.).
A)
B)
C)
D)
81. On October 1, 2012, Data Company sold merchandise to a customer and received a 9%, 4-month
promissory note with a principal amount of $80,000.
A) Identify the maturity date of the note.
B) How much total interest revenue will Data Company earn over the term of the note?
C) How much interest revenue will Data Company recognize during 2012?
A) January 31, 2013 (4 months from October 1, 2012)
B) $80,000 ´ 9% ´ 4/12 = $2,400
C) $80,000 ´ 9% ´ 3/12 = $1,800

Refer to the information provided for Tempe Corporation. Identify the maturity date of the note.
October 31, 2012

Refer to the information provided for Tempe Corporation. How much total interest revenue will Tempe
Corporation recognize over the term of the note?
$4,000 = $100,000 (Principal) ´ 8% (Interest rate) ´ 6/12 (Time period)
84. Harson Company received a 12%, 6-month promissory note with a principal amount of $10,000 from
Samson Company, for the sale of merchandise on December 1, 2012.
A) How much interest revenue will Harson recognize as of December 31, 2012?
B) How much interest revenue will Harson recognize in 2013?
C) Determine the total amount of cash Harson will collect on the date of the note's maturity.
A) $10,000 ´ 12% ´ 1/12 = $100
B) $10,000 ´ 12% ´ 5/12 = $500
C) $10,000 + (10,000 ´ 12% ´ 6/12) = $10,600
85. Proctor Corporation sells equipment for $80,000 to Gamble Incorporated on January 1, 2012 in exchange
for note bearing 12 percent interest.
Prepare the following journal entries in the books of Proctor Corporation:
A) Record the sale on January 1, 2012.
B) Repayment on December 31, 2012.
C) Accrue interest on December 31, 2012, and repayment on March 31, 2013.
Debit Credit
A) 01/01/12 Notes 80,000
Receivab
le
Sales Revenue 80,000
B) 12/31/12 Cash 89,600

Interest Revenue 9,600
($80,000
´ 12% ´
12/12)
C) 12/31/12 Interest 9,600

Receivab
le
(Accrual
of
interest)
03/31/13 Cash 92,000

Interest Receivable 9,600
($80,000
´ 12% ´
15/12 =
$12,000
interest)
86. Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of
these credit sales will default. During 2012 a customer defaults on a $6,000 balance related to goods purchased
during 2011. Austin's accounts receivable and allowance for bad debts balances at the end of the year were
$50,000 and $7,000 (credit) respectively.
Prepare journal entries to record:
A) Write off the defaulted $6,000 balance.
B) Adjusting entry to record the bad debt expense for 2012.
C) What is the net accounts receivable balance at the end of the year?
Debit Credit
A) Allowan 6,000
ce for
Bad
Debts
B) Bad 12,000
Debt
Expense
($1,200,000 ´ 1% = $12,000)
C) Account $50,000
s
receivabl
e
Less: 13,000*
Allowan
ce for
bad
debts
Net accounts receivable $37,000
* $7,000 -
6,000 +
12,000 =
$13,000

December 31, 2012.
Sales $411,000
Refer to the information provided for Monkey Business Company. The firm estimates that bad debts could be 2% of net sales.
A) What amount will Monkey Business recognize as bad debts expense for the year?
B) Assume that the company has a balance of accounts receivable of $108,900, and an allowance for bad debts of $820 before the
adjustment. What will be the net realizable value once the adjustment from (Part A) is made?
A) $411,000 - 12,000 = 399,000 (Net sales); 399,000 (Net sales) ´ 2% = $7,980
B) $108,900 (Accounts receivables balance) - (820 + 7,980) = $100,100

December 31, 2012.
Sales $411,000
Refer to the information provided for Monkey Business Company. Assume that the company estimates bad debts using the aging method. The aging
schedule indicates that accounts receivable of $11,500 will be uncollected at the end of the year.
A) What amount will Monkey Business Company recognize as bad debt expense for the year?
B) If the ending balance of accounts receivables is $65,200, what is the net realizable value of accounts receivable reported on
December 31, 2012?
A) $11,500 - 4,100 = $7,400
B) $65,200 (Accounts receivable) - 11,500 (Allowance) = $53,700
89. What is net realizable value?
1. Company expects to collect from its total accounts receivable balance.

2. Total accounts receivable balance minus allowance will give the value for it.
3. Companies must follow the principle of conservatism and report their accounts receivable at net realizable value.
90. What is the purpose of an aging schedule for accounts receivable?
An aging schedule categorizes the various account receivable amounts by age based on how long an account is
past due or outstanding. A company uses this for estimating how much of its accounts receivable are expected
to default. It is a refined approach because it lists the dollar amounts of receivables based on the period of time
each has been outstanding, such as 30, 60, or more days outstanding.
91. Waltz Company reported its accounts receivable turnover ratio at 10 times. Its credit terms are 2/10, n/30.
What does this ratio tell you about Waltz Company?
At an accounts receivable turnover of 10 times per year, Waltz's receivables are outstanding approximately 36
days prior to collection (360/10 days). Given that Waltz's terms are 2/10, n/30, one would expect customers to
pay within 30 days. Customers should pay within ten days to obtain the discount of 2%. Waltz needs to make
more efforts to collect its receivables given its current credit terms.
92. A sales invoice that bears the notation 2/10 means ____________________.
customer can receive 2% discount if they pay within 10 days.
93. To encourage prompt payment, sellers offer a(n) ____________________.
sales discount
94. According to the ____________________ principle, bad debt expense must be recorded in the period
related to the sale.
matching
95. The method in which companies use two entries to account for bad debt expense- one to estimate the
expense and a second to write off receivables is the ____________________.
allowance method
96. A(n) ____________________ categorizes the various accounts receivable amounts by their ages.
aging schedule
97. ____________________ are receivables that generally specify an interest rate and a maturity date at which
any interest and principal must be repaid.
Notes receivable

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Financial ACCT2 2nd Edition Godwin

Credit sales during the year $3,200,000

Trade accounts receivable, net of allowance for doubtful

9. If a company uses the allowance method of accounting for bad debts:

11. The allowance for bad debts represents:

12. Digital Corporation

Credit sales during the year $2,400,000

13. Digital Corporation

Credit sales during the year $2,400,000

Credit sales during the year $2,400,000

16. Two methods of accounting for uncollectible accounts are the:

24. Collision Corporation

Credit Sales $2,000,000

25. Collision Corporation

Credit Sales $2,000,000

Credit Sales $2,000,000

27. Collision Corporation

Credit Sales $2,000,000

28. Profile Corporation

Accounts receivable--January 1, 2012 $ 250,000

29. Profile Corporation

Accounts receivable--January 1, 2012 $ 250,000

30. Bolt Corporation

Accounts receivable--January 1, 2012 $455,000

Accounts receivable--January 1, 2012 $455,000

32. Aspen Corporation

Credit sales $2,100,000

33. Aspen Corporation

Credit sales $2,100,000

34. Aspen Corporation

Credit sales $2,100,000

35. Aspen Corporation

Credit sales $2,100,000

Credit sales $2,100,000

37. Aspen Corporation

Credit sales $2,100,000

Net sales $450,000 Accounts receivable, 1/31/2011 $175,000

Net sales $450,000 Accounts receivable, 1/31/2011 $175,000

Net sales $450,000 Accounts receivable, net $175,000

A. Net sales increased by $2,300 or 10.0% during 2012.

48. Max’s Tire Center Company

49. Max’s Tire Center Company

A. Net accounts receivable increased by $12,300 or 28.47% during 2012.

50. Max’s Tire Center Company

A. Net sales increased by $10,000 or 2.78% during 2012.

51. Max’s Tire Center Company

53. Max’s Tire Center Company

54. Receivables turnover ratio measures:

59. Nadal Company

61. Metal Company

62. Metal Company

64. Peach Tree Farm

65. Peach Tree Farm

67. Lubing Company

68. Land Shoes

Prepare the journal entries to:

A) Record the sale using the gross method.

B) Assume the payment is received on June 10, 2012.

C) Assume payment is not received until June 21, 2012.

Balance 2012 2011

Answer these questions concerning Rimm Company's receivables:

Credit sales $1,200,000

77. Hammer Associates