Accounts receivable Amounts owed by customers on

account. (p. 388).

Accounts receivable turnover A measure of the liquid-

ity of accounts receivable; computed by dividing net

credit sales by average net accounts receivable. (p. 405).

Aging the accounts receivable The analysis of cus-

tomer balances by the length of time they have been unpaid. (p. 395).

Allowance method A method of accounting for bad debts that involves estimating uncollectible
accounts at the end of each period. (p. 391).

Average collection period The average amount of time that a receivable is outstanding; calculated by
dividing 365 days by the accounts receivable turnover. (p. 405).

Bad Debt Expense An expense account to record uncollectible receivables. (p. 390).

Cash (net) realizable value The net amount a company expects to receive in cash. (p. 391).

Direct write-off method A method of accounting for bad debts that involves expensing accounts at the
time they are determined to be uncollectible. (p. 390).

Dishonored (defaulted) note A note that is not paid in full at maturity. (p. 403).

Factor A finance company or bank that buys receivables from businesses and then collects the payments
directly from the customers. (p. 397).

Maker The party in a promissory note who is making the promise to pay. (p. 399).
Notes receivable Written promise (as evidenced by a

formal instrument) for amounts to be received. (p. 388).

Other receivables Various forms of nontrade receivables, such as interest receivable and income taxes
refundable. (p. 388).

Payee The party to whom payment of a promissory note is to be made. (p. 399).

Percentage-of-receivables basis Management estimates

what percentage of receivables will result in losses

from uncollectible accounts. (p. 395).

Percentage-of-sales basis Management estimates what

percentage of credit sales will be uncollectible. (p. 394).

Promissory note A written promise to pay a specifi ed

amount of money on demand or at a defi nite time. (p. 399).

Receivables Amounts due from individuals and other

companies. (p. 388).

Trade receivables Notes and accounts receivable that

result from sales transactions. (p. 388).

Test of acc rec

1. Receivables are frequently classifi ed as:

(a) accounts receivable, company receivables, and

other receivables.

(b) accounts receivable, notes receivable, and employee

receivables.

(c) accounts receivable and general receivables.

(d) accounts receivable, notes receivable, and other

2. Buehler Company on June 15 sells merchandise on

account to Chaz Co. for $1,000, terms 2/10, n/30. On

June 20, Chaz Co. returns merchandise worth $300 to

Buehler Company. On June 24, payment is received

from Chaz Co. for the balance due. What is the amount

of cash received?

(a) $700. (c) $686.

(b) $680. (d) None of the above.

3. Which of the following approaches for bad debts is

best described as a balance sheet method?

(a) Percentage-of-receivables basis.

(b) Direct write-off method.

(c) Percentage-of-sales basis.

(d) Both percentage-of-receivables basis and direct

write-off method.

4. Hughes Company has a credit balance of $5,000

in its Allowance for Doubtful Accounts before any

adjustments are made at the end of the year. Based

on review and aging of its accounts receivable at the

end of the year, Hughes estimates that $60,000 of its

receivables are uncollectible. The amount of bad debt

expense which should be reported for the year is:

(a) $5,000. (c) $60,000.

(b) $55,000. (d) $65,000.

that Hughes has a debit balance of $5,000 in its Allow-

ance for Doubtful Accounts before any adjustments

are made at the end of the year. In this situation, the

amount of bad debt expense that should be reported

for the year is:

(a) $5,000. (c) $60,000.

(b) $55,000. (d) $65,000.

6. Net sales for the month are $800,000, and bad debts

are expected to be 1.5% of net sales. The company uses

the percentage-of-sales basis. If Allowance for Doubt-

ful Accounts has a credit balance of $15,000 before

adjustment, what is the balance after adjustment?

(a) $15,000. (c) $23,000.

(b) $27,000. (d) $31,000.

7. In 2015, Roso Carlson Company had net credit sales of

$750,000. On January 1, 2015, Allowance for Doubtful

Accounts had a credit balance of $18,000. During 2015,

$30,000 of uncollectible accounts receivable were

written off. Past experience indicates that 3% of net

credit sales become uncollectible. What should be the

at December 31, 2015?

(a) $10,050. (c) $22,500.

(b) $10,500. (d) $40,500.

8. An analysis and aging of the accounts receivable of

Prince Company at December 31 reveals the following

data.

Accounts receivable $800,000

Allowance for doubtful

accounts per books before

adjustment 50,000

Amounts expected to become

uncollectible 65,000

The cash realizable value of the accounts receivable at

December 31, after adjustment, is:

(a) $685,000. (c) $800,000.

(b) $750,000. (d) $735,000.

9. Which of the following statements about Visa credit

card sales is incorrect?

(a) The credit card issuer makes the credit investiga-

tion of the customer.

(b) The retailer is not involved in the collection

process.
(c) Two parties are involved.

(d) The retailer receives cash more quickly than it

would from individual customers on account.

10. Blinka Retailers accepted $50,000 of Citibank Visa

credit card charges for merchandise sold on July 1.

Citibank charges 4% for its credit card use. The en-

try to record this transaction by Blinka Retailers will

include a credit to Sales Revenue of $50,000 and a

debit(s) to:

(a) Cash $48,000

and Service Charge Expense $2,000

(b) Accounts Receivable $48,000

and Service Charge Expense $2,000

(c) Cash $50,000

(d) Accounts Receivable $50,000

11. One of the following statements about promissory

notes is incorrect. The incorrect statement is:

(a) The party making the promise to pay is called the

maker.

(b) The party to whom payment is to be made is

called the payee.

(c) A promissory note is not a negotiable instrument.

risk customers.

12. Foti Co. accepts a $1,000, 3-month, 6% promissory

note in settlement of an account with Bartelt Co. The

entry to record this transaction is as follows.

(a) Notes Receivable 1,015

Accounts Receivable 1,015

(b) Notes Receivable 1,000

Accounts Receivable 1,000

(c) Notes Receivable 1,000

Sales Revenue 1,000

(d) Notes Receivable 1,030

Accounts Receivable 1,030

13. Ginter Co. holds Kolar Inc.’s $10,000, 120-day, 9% note.

The entry made by Ginter Co. when the note is collected,

assuming no interest has been previously accrued, is:

(a) Cash 10,300

Notes Receivable 10,300

(b) Cash 10,000

Notes Receivable 10,000

(c) Accounts Receivable 10,300

Notes Receivable 10,000

Interest Revenue 300

(d) Cash 10,300

Interest Revenue 300

14. Accounts and notes receivable are reported in the cur-

rent assets section of the balance sheet at:

(a) cash (net) realizable value.

(b) net book value.

(c) lower-of-cost-or-market value.

(d) invoice cost.

15. Oliveras Company had net credit sales during the year

of $800,000 and cost of goods sold of $500,000. The

balance in accounts receivable at the beginning of

the year was $100,000, and the end of the year it was

$150,000. What were the accounts receivable turnover

and the average collection period in days?

(a) 4.0 and 91.3 days.

(b) 5.3 and 68.9 days.

(c) 6.4 and 57 days.

(d) 8.0 and 45.6 days.

Answer of test Answers to Self-Test Questions

1. d 2. c ($1,000 2 $300) 3 (100% 2 2%) 3. a 4. b ($60,000 2 $5,000) 5. d ($60,000 1

$5,000) 6. b ($800,000 3 1.5%) 1 $15,000 7. b ($750,000 3 3%) 1 ($18,000 2 $30,000) 8. d

($800,000 2 $65,000) 9. c 10. a 11. c 12. b 13. d $10,000 1 ($10,000 3 120/360 3 9%)

14. a 15. c $800,000 4 [($100,000 1 $150,000) 4 2] and 365 4 6.4

1. Under IFRS, loans and receivables are to be reported on the balance sheet at:

(a) amortized cost.

(b) amortized cost adjusted for estimated loss provisions.

(c) historical cost.

(d) replacement cost.

2. Which of the following statements is false?

(a) Loans and receivables include equity securities purchased by the company.

(b) Loans and receivables include credit card receivables.

(c) Loans and receivables include amounts owed by employees as a result of company loans to

employees.

(d) Loans and receivables include amounts resulting from transactions with customers.

3. In recording a factoring transaction:

(a) IFRS focuses on loss of control.

(b) GAAP focuses on loss of control and risks and rewards.

(c) IFRS and GAAP allow partial derecognition.

(d) IFRS allows partial derecognition

4. Under IFRS:

(a) the entry to record estimated uncollected accounts is the same as GAAP.

(b) loans and receivables should only be tested for impairment as a group.

(c) it is always acceptable to use the direct write-off method.

(d) all fi nancial instruments are recorded at fair value.

5. Which of the following statements is true?

(a) The fair value option requires that some types of fi nancial instruments be recorded at fair
value.

(b) The fair value option allows, but does not require, that some types of fi nancial instruments

be recorded at amortized cost.

(c) The fair value option allows, but does not require, that some types of fi nancial instruments

be recorded at fair value.

(d) The FASB and IASB would like to reduce the reliance on fair value accounting for fi nancial

Answer of self check

1. b 2. a 3. d 4. a 5. C