Problem I: (24 points) Indicate whether each of the following statements is true (T) or false (F).
Question:
Problem I: (24 points) Indicate whether each of the following statements is true (T) or false (F).
a.
___
The Allowance for Doubtful Accounts account is an example of a contra-liability account.
b.
___
The amount shown on the balance sheet called Net Accounts Receivable is determined by adding together the balances in the Accounts Receivable and Allowance for Uncollectible Accounts accounts.
c.
___
Net Accounts Receivable, also called net realizable value, represents the portion of the total accounts receivable balance the company expects to actually collect.
d.
___
The Allowance Method of accounting for bad debts requires companies to record an estimate of bad debt expense arising from an uncollectible sale in the same year sales revenue is recorded rather than in the year the bad debt expense is known with certainty.
e.
___
The Allowance Method of accounting for bad debts is an application of GAAP whereas the Direct Write-Off Method is not.
f.
___
When a companys receivables turnover ratio is decreasing from one year to the next, it implies customers are paying off their accounts receivable more quickly than in the past.
g.
___
As a companys receivables turnover ratio increases, the average collection period in terms of days should be decreasing.
h.
___
Before the year-end journal entry to record bad debts, if the Allowance for Doubtful Accounts account has a debit balance, the estimate of uncollectible accounts at the beginning of the year was too low.
i.
___
When preparing an aging report, most companies should expect that the longer a particular customers account has been outstanding, the less likely it is to become uncollectible.
j.
___
A company may accelerate its cash receipts by selling its accounts receivable to a factor company.
k.
___
As a companys Bad Debts Expense account balance increases, the amount of net sales revenue reported on its income statement will decrease.
l.
___
The specific write-off of an account receivable will decrease the net realizable value of the accounts receivables.
Problem II: (17 points) On March 1, 20X6, Newton Corp. provided services worth $20,000 on account to one of its longtime customers. At that time, Newton debited Accounts Receivable and credited Service Revenue for $20,000.On April 1, 20X6, Newton agreed to convert the account receivable to a 12-month, 12%, note receivable. The customer will pay Newton $20,000 plus accrued interest on April 1, 20X7. Interest on the note is compounded annually.
Note: Round all interest calculations to the nearest whole month.
A.How much total interest will Newton eventually earn on the Note Receivable?
Answer: $_____
B.Assuming Newton has a calendar year-end, prepare in the journal below the following:
The entry to record the conversion of the account receivable to a note receivable on April 1, 20X6
The entry to record accrued interest on December 31, 20X6
The entry to record the collection of the notes face value plus interest on April 1, 20X7.
Date
Debit
Credit
4/1/X6
12/31/X6
4/1/X7
C.Accounting Check Do your credits to the Interest Revenue account add up to the total interest revenue amount from part A?In addition, there should not be any note receivable balance remaining after the last entry since the note plus all of its interest has been collected. Are your receivables balances equal to zero? If your answer is not yes to both questions, please go back and check your calculations and/or entries.
Problem III:(18 points) Summer Inc.s trial balance indicates the following select account balances at the end of 20X1 before the year-end adjustment to record bad debts:
Summer Inc.
Trial Balance (partial)
12/31/X1
Debit
Credit
Accounts Receivable 12/31/X1
$ 500,000
Allowance for Doubtful Accounts (AFDA) 12/31/X1
$20,000
Sales Revenue
8,000,000
Bad Debts Expense 1/1/X1
0
A.Assume at the end of 20X1, Summers management estimates 5% of its ending Accounts Receivable account balance will be uncollectible.
Required: Prepare the 12/31/X1 journal entry to record bad debts for 20X1.
Date
Debit
Credit
12/31/X1
B.Assume that on January 15th of the following year (20X2), Summers is notified that one of its customers who owes them money has filed for bankruptcy. As a consequence, $1,000 of the Accounts Receivable balance is deemed to be uncollectible and will be specifically written-off.
Required: Prepare the specific write-off journal entry to record this uncollectible account.
Date
Debit
Credit
1/15/X2
Problem IV:(12 points) On November 15, Wolfpack Corp. sold $900,000 of its accounts receivables to a factor company. The factor company assesses a service charge of 3% of the accounts receivables sold.
Required: Prepare the journal entry Wolfpack should make when it factors its receivables.
Date
Debit
Credit
Nov 15
Problem V:(18 points)
On November 20, Wolfpack Corp. sold inventory having a cost of $5,000 for $25,000. Wolfpack accepted the customers MasterCard for the sales amount. At the end of the day, MasterCard receipts were deposited in the companys bank account. MasterCard charges a 3% service charge for credit card sales.
Wolfpack uses the perpetual inventory system.
Required: Prepare the journal entries Wolfpack should make on November 20 related to the above sale.
Date
Debit
Credit
Nov 20
Problem VI: (11 points)The following information is available for Windsor Corp. for the past two years:
20X3
20X2
Accounts Receivable
$ 200,000
$ 180,000
Allowance for Doubtful Accounts
(20,000)
(30,000)
Net Accounts Receivable
$ 180,000
$ 150,000
Net Cash Sales
$ 500,000
$ 700,000
Net Credit Sales
1,500,000
1,600,000
Total Net Sales
$2,000,000
$2,300,000
A.In the chart below, indicate Windsors accounts receivable turnover and average collection period for 20X3. Assume a 360-day calendar year. Round answers to two decimal places.
20X3
Accounts Receivable Turnover
Average Collection Period
Calculations:
B.What does the accounts receivable turnover indicate? Also, in general, when comparing the turnover from one year to the next, do companies prefer it to be higher or lower over time? (two three sentences)
C.What is the relationship (ex. direct correlation or inverse) between the account receivable turnover and the average collection period? Also, in general, when comparing the average collection period from one year to the next, do companies prefer it to be higher or lower over time? (two three sentences)
Ch 8 Graded Assignment Note: To receive partial credit on problems which require calculations, calculations must be shown. Problem I: (24 points) Indicate whether each of the following statements is true (T) or false (F). a. ___ The \"Allowance for Doubtful Accounts\" account is an example of a contra-liability account. b. ___ The amount shown on the balance sheet called \"Net Accounts Receivable\" is determined by adding together the balances in the \"Accounts Receivable\" and \"Allowance for Uncollectible Accounts\" accounts. c. ___ \"Net Accounts Receivable\ Expert Answer:
