Accounts Receivables Paper 1

1

An analysis of an entity’s $150,000 accounts receivable at year end resulted in a $5,000 ending balance for its allowance for uncollectible accounts and a bad debt expense of $2,000. During the past year, recoveries on bad debts previously written off were correctly recorded at $500. If the beginning balance in the allowance for uncollectible accounts was $4,700, what was the amount of accounts receivable written off as uncollectible during the year?






2

The following information applies to Nichola Manufacturing Company, which has a 6-month operating cycle:
Cash sales ......................$100,000
Credit sales during the sixth month with net 30 days terms................ 150,000
Credit sale during the fifth month with special terms of net 9 months ...........10,000
Interest earned and accrued on an investment that matures during month 3 of the next cycle..... 2,000
The total of Nichola’s trade accounts receivable at the end of the current cycle is






3

Johnson Company uses the allowance method to account for uncollectible accounts receivable. After recording the estimate of uncollectible accounts expense for the current year, Johnson decided to write off in the current year the $10,000 account of a customer who had filed for bankruptcy. What effect does this write-off have on the company’s current net income and total current assets, respectively? ..Net Income...Total Current Assets






4

Based on the industry average, Davis Corporation estimates that its bad debts should average 3% of credit sales. The balance in the allowance for uncollectible accounts at the beginning of Year 3 was $140,000. During Year 3, credit sales totaled $10,000,000, accounts of $100,000 were deemed to be uncollectible, and payment was received on a $20,000 account that had previously been written off as uncollectible. The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of






5

The following information has been compiled by Able Manufacturing Company:
? Sale of company products for the period to customers with net 30-day terms amounting to $150,000.
? Sale of company products for the period to a customer, supported by a note for $25,000, with special terms of net 180 days.
? Balance of trade receivables at the end of the last period was $300,000.
? Collections of open trade receivables during the period was $200,000.
? Rental income for the period, both earned and accrued but not yet collected, from the Able Employees’ Credit Union for use of company facilities was $2,000.
The open trade receivables balance to be shown on the statement of financial position for the period is






6

Marr Co. had the following sales and accounts receivable balances, prior to any adjustments at year end:
Credit sales ...................................$10,000,000
Accounts receivable ..........................3,000,000
Allowance for uncollectible accounts... 50,000
Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end. By what amount should Marr adjust its allowance for uncollectible accounts at year end?






7

When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account






8

Wren Company had the following account balances at December 31:
Accounts receivable.......................... $ 900,000
Allowance for uncollectible accounts (before any provision for the year uncollectible accounts expense)......................................... 16,000
Credit sales for the year..................... 1,750,000
Wren is considering the following methods of estimating uncollectible accounts expense for the year:
? Based on credit sales at 2%
? Based on accounts receivable at 5%
What amount should Wren charge to uncollectible accounts expense under each method? Percentage of Percentage of
Credit Sales ...Accounts Receivable






9

On March 31, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale’s trade accounts receivable at that date revealed the following:
Estimated Age.......... Amount.............. Estimated
....................................................... Uncollectible 0-30 days.............. $60,000................ 5%
31-60 days ..............4,000 .................10%
Over 60 days............ 2,000 .................70%
What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet?






10

Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance ...Direct Write-Off






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