Answer eye openers
1. What are the three classifications of receivables?
2. What types of transactions give rise to accounts receivable?
3. In what section of the balance sheet should a note receivable be listed if its term is (a) 90 days, (b) six years?
4. Give two examples of other receivables.
5. Gallatin Hardware is a small hardware store in the rural township of Willow Creek that rarely extends credit to its customers in the form of an account receivable. The few customers that are allowed to carry accounts receivable are long-time residents of Willow Creek and have a history of doing business at Gallatin Hardware. What method of accounting for uncollectible receivables should Gallatin Hardware use?
Why?
6. Which of the two methods of accounting for uncollectible accounts provides for the recognition of the expense at the earlier date?
7. What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts, and is its normal balance a debit or a credit?
8. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $298,150 and Allowance for Doubtful Accounts has a balance of $31,200. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance sheet.
9. A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s net sales on account. After seven years,
the balance in Allowance for Doubtful Accounts has become very large in relationship to the balance in Accounts Receivable. Give two possible explanations.
10. Which of the two methods of estimating un-collectibles provides for the most accurate estimate of the current net realizable value of the receivables?
11. For a business, what are the advantages of a note receivable in comparison to an account receivable?
12. Blanchard Company issued a note receivable to Tucker Company. (a) Who is the payee? (b) What is the title of the account used by Tucker Company in recording the note?
13. If a note provides for payment of principal of $90,000 and interest at the rate of 7%, will the interest amount to $6,300? Explain.
14. The maker of a $10,000, 8%, 90-day note receivable failed to pay the note on the due date of June 30. What accounts should be debited and credited by the payee to record the dishonored note receivable?
15. The note receivable dishonored in Eye Opener 14 is paid on July 30 by the maker, plus interest for 30 days, 10%. What entry should be made to record the receipt of the payment?
16. Under what section should accounts receivable be reported on the balance sheet?
