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Exam 9: Receivables

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Question 61

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A contingent liability is an obligation to make a future payment if an uncertain future event occurs.

A) True
B) False

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Question 62

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As long as a company accurately records credit sales information,it is not necessary to have accounts for specific customers.

A) True
B) False

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Question 63

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Companies must follow both the matching principle and the materiality principle when considering the use of the direct write-off method.

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and that is usually the most reliable is the:

Accounts receivable arise from credit sales to customers by both retailers and wholesalers.

Firms maintain their own credit cards:

Quality of receivables refers to:

On June 18,2015,Woods Co.received from one of its customers,Webb Co.,a 90 day,12%,$12,000 note receivable,in exchange for contract services provided.Woods Co.has a March 31 year end.Webb Co.honoured the note at maturity.Prepare the entries for the issuance and the maturity of the note.

Augusto Diaz borrowed $1,000 and signed a 6-month promissory note at 11% interest.The total amount of interest is $110.00.

Quality of receivables refers to the likelihood of collection without loss.

When a maker of a note honours a note:

The direct write-off method satisfies generally accepted accounting principles.

The ____________________________ ratio measures the liquidity of receivables.

Compaq had net sales of $10,500 million.Its average account receivables were $1,750 million.Its accounts receivable turnover was 6.

Wasson Corp had the following items in its unadjusted trial balance at December 31: Prepare the adjusting entry to estimate bad debts under each of the following independent situations.(Show all work.) (1)Bad debts are estimated to be 8% of credit sales. (2)An analysis shows that 8% of outstanding accounts receivable will not be collected.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible.

Credit sales are recorded by crediting an account receivable for a specific customer.

The days' sales uncollected ratio is used to:

The days' sales uncollected ratio measures a company's ability to manage its debt.

Capilano Company has a July 31 year-end.You have been provided with the following information for the year just ended: - Total sales revenue for the year was $930,000. - Cash sales represent 20% of total sales. - The accounts receivable balance at the beginning of the year was $102,000. - The accounts receivable balance at the end of the year was $162,000. - A review of the outstanding accounts receivable at the end of the year indicates that $8,100 should be written off. - The industry uses the allowance approach based on 4% of accounts receivable or 1% of credit sales. Prepare the necessary adjusting entry to record the bad debts expense assuming that Capilano Company uses the direct write-off approach.