S5-13. (Learning Objectives 4: Answering practical questions about receivables) Answer these questions about receivables and uncollectibles. For the true-false questions, explain any answers that turn out to be false.

1. True or false? The direct write-off method of accounting for uncollectibles understates assets.

2. California Bank lent $240,000 to Sacramento Company on a six-month, 8% note.

Which party has interest receivable? Which party has interest payable? Interest expense?

Interest revenue? How much interest will these organizations record one month after Sacramento Company signs the note?

3. When California Bank accrues interest on the Sacramento Company note, show the directional effects on the bank’s assets, liabilities, and equity (increase, decrease, or no effect).

4. True or false? Credit sales increase receivables. Collections and write-offs decrease receivables.

5. Which receivables figure (the total amount that customers owe the company, or the net amount the company expects to collect) is more interesting to investors as they consider buying the company’s shares? Give your reason.

6. Show how to determine net accounts receivable.