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Questions and Answers
The allowance method is required by GAAP for financial reporting purposes.
The allowance method is required by GAAP for financial reporting purposes.
True
The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year.
The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year.
True
The company's estimate of uncollectible accounts is:
The company's estimate of uncollectible accounts is:
$600
If Kimbrough Corporation estimates that 20% of the total year-end accounts receivable will not be collected, what will it record?
If Kimbrough Corporation estimates that 20% of the total year-end accounts receivable will not be collected, what will it record?
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Account(s) with a normal credit balance include: (Select all that apply.)
Account(s) with a normal credit balance include: (Select all that apply.)
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Estimated uncollectible accounts do what to assets and do what to net income?
Estimated uncollectible accounts do what to assets and do what to net income?
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To record acceptance of a $10,000 three-month, nine percent promissory note, what will Boyd Corporation record?
To record acceptance of a $10,000 three-month, nine percent promissory note, what will Boyd Corporation record?
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No impact on the accounting equation results from reclassifying an account receivable as a note receivable.
No impact on the accounting equation results from reclassifying an account receivable as a note receivable.
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How much interest will be collected at the maturity date of a $10,000 three-month, nine percent promissory note?
How much interest will be collected at the maturity date of a $10,000 three-month, nine percent promissory note?
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The entry to record the collection of a $5,000 six-month, five percent promissory note at maturity will include a:
The entry to record the collection of a $5,000 six-month, five percent promissory note at maturity will include a:
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The year-end adjustment to accrue interest revenue for a $30,000 six-month, 12 percent promissory note will include a:
The year-end adjustment to accrue interest revenue for a $30,000 six-month, 12 percent promissory note will include a:
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On maturity date, the transaction recorded by Sigma Corporation for a $100,000 six-month, nine percent promissory note will involve:
On maturity date, the transaction recorded by Sigma Corporation for a $100,000 six-month, nine percent promissory note will involve:
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A company's decision to offer discounts for early payment has the potential to increase sales volume, but comes at the cost of slower cash collection.
A company's decision to offer discounts for early payment has the potential to increase sales volume, but comes at the cost of slower cash collection.
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What is Winner Company's receivables turnover ratio?
What is Winner Company's receivables turnover ratio?
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What is the average collection period for Turner Company?
What is the average collection period for Turner Company?
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If the percentage increase in receivables for Petro Corporation is greater than the percentage increase in sales, what conclusion can be drawn?
If the percentage increase in receivables for Petro Corporation is greater than the percentage increase in sales, what conclusion can be drawn?
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Company A is managing its receivables better than Company B if it has a low receivables turnover ratio and a correspondingly high average collection period.
Company A is managing its receivables better than Company B if it has a low receivables turnover ratio and a correspondingly high average collection period.
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Net Revenues are defined as:
Net Revenues are defined as:
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Sales discounts refer to:
Sales discounts refer to:
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Net realizable value is defined as:
Net realizable value is defined as:
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Sales returns refer to:
Sales returns refer to:
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Sales allowances refer to:
Sales allowances refer to:
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Contra-revenue accounts have:
Contra-revenue accounts have:
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The allowance method is:
The allowance method is:
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Trade discounts refer to:
Trade discounts refer to:
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When using an aged method for estimating uncollectible accounts, older accounts are considered less likely to be collected.
When using an aged method for estimating uncollectible accounts, older accounts are considered less likely to be collected.
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What is the amount of interest revenue reported in Dots Inc's 2018 income statement for lending $100,000 at 3%?
What is the amount of interest revenue reported in Dots Inc's 2018 income statement for lending $100,000 at 3%?
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Record the adjusting entry for uncollectible accounts for Physicians' Hospital on December 31, 2021, for $47,000 Accounts Receivable.
Record the adjusting entry for uncollectible accounts for Physicians' Hospital on December 31, 2021, for $47,000 Accounts Receivable.
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Record the acceptance of the note receivable and the cash collection for Terrell & Associates for the services provided to Whole Grain Bakery.
Record the acceptance of the note receivable and the cash collection for Terrell & Associates for the services provided to Whole Grain Bakery.
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Study Notes
Allowance Method
- Required by GAAP for financial reporting to estimate future uncollectible accounts.
- Managers must record estimates in the current year impacting financial statements.
Uncollectible Accounts Estimates
- Estimated uncollectible accounts reduce both total assets and net income.
Accounts Receivable and Promissory Notes
- Ellison, Inc. estimated $600 uncollectibles from $18,000 billed; 10% of receivables.
- Kimbrough Corporation projected $1 million uncollectibles from $5 million receivables; 20% estimation.
- Promissory notes recorded as Notes Receivable; Boyd Corporation recorded a debit for $10,000 on acceptance.
Interest Revenue
- Interest on a note is calculated and recognized at maturity.
- Alpha Corporation will collect $225 in interest on a $10,000 note.
- Dallas Corporation accrued $1,200 for interest revenue on a $30,000 note at year-end.
Collection of Notes
- Sigma Corporation expects a total of $104,500 upon maturity of a $100,000 note, including $3,000 in interest.
- Sept 1 note collection entry includes crediting Interest Revenue for $125 from a $5,000 note.
Discounts and Net Revenues
- Discounts for early payment can potentially increase sales without delaying cash collection.
- Net Revenues calculated as total revenues less contra revenues.
Sales Adjustments
- Sales discounts reduce revenue due to early payment incentives.
- Sales returns and allowances account for revenue reduction from product returns and deficiencies.
Receivables Management
- Receivables turnover ratio for Winner Company is 5.0, indicating efficiency in collecting receivables.
- Average collection period for Turner Company computed at 36.5 days, reflecting time taken to collect credit sales.
- An increase in the average collection period may indicate worsening customer payment behavior.
Accounting Principles and Definitions
- Contra-revenue accounts have balances opposite of traditional revenue accounts.
- The allowance method defines how to account for estimated uncollectibles, ensuring financial health assessment.
- Trade discounts represent sales below the listed price, impacting reported revenue.
Unique Situations
- On December 31, 2021, adjustment entry for Physicians' Hospital resulted in a debit to bad debt expense of $5,950 due to a 15% estimate of uncollectibles.
- Terrell & Associates recorded legal services of $9,800 via a note from Whole Grain Bakery, showing revenue recognition practices in services without immediate cash collection.
Studying That Suits You
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Description
Test your knowledge of key concepts from Accounting Chapter 5.2. This quiz includes true/false statements and practical scenarios related to the allowance method for uncollectible accounts. Challenge yourself with these flashcards to enhance your understanding of GAAP and financial reporting.
