Warren SMChap08 - 463 CHAPTER 8 RECEIVABLES EYE OPENERS 1 Receivables are normally classified as(1 accounts receivable(2 notes receivable or(3

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 463 CHAPTER 8 RECEIVABLES EYE OPENERS 1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables. 2. Transactions in which merchandise is sold or services are provided on credit generate accounts receivable. 3. a. Current Assets b. Investments 4. Examples of other receivables include inter- est receivable, taxes receivable, and receiv- ables from officers or employees. 5. Gallatin Hardware should use the direct write-off method because it is a small busi- ness that has a relatively small number and volume of accounts receivable. 6. The allowance method 7. Contra asset, credit balance 8. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $266,950 ($298,150 – $31,200) in the Current Assets section of the balance sheet. In this case, the amount of the allow- ance for doubtful accounts should be shown separately in a note to the financial state- ments or in parentheses on the balance sheet. Alternatively, the accounts receivable may be shown at the gross amount of $298,150 less the amount of the allowance for doubtful accounts of $31,200, thus yield- ing net accounts receivable of $266,950. 9. (1) The percentage rate used is excessive in relationship to the volume of accounts written off as uncollectible; hence, the balance in the allowance is excessive. (2) A substantial volume of old uncollectible accounts is still being carried in the ac- counts receivable account. 10. An estimate based on analysis of receiv- ables provides the most accurate estimate of the current net realizable value. 11. The advantages of a claim evidenced by a note are that (1) the debt is acknowledged, (2) the payment terms are specified, (3) it is a stronger claim in the event of court action, and (4) it is usually more readily transferable to a creditor in settlement of a debt or to a bank for cash. 12. a. Tucker Company b. Notes Receivable 13. The interest will amount to $6,300 only if the note is payable one year from the date it was created. The usual practice is to state the interest rate in terms of an annual rate, rather than in terms of the period covered by the note. 14. Debit Accounts Receivable Credit Notes Receivable Credit Interest Revenue 15. Cash ................................. 10,285 Accounts Receivable... 10,200 Interest Revenue ......... 85 ($10,200 × 30/360 × 10% = $85) 16. Current Assets 464 PRACTICE EXERCISES PE 8–1A Sept. 19 Cash.................................................................... 100 Bad Debt Expense............................................. 500 Accounts Receivable—Pat Roark............... 600 Dec. 20 Accounts Receivable—Pat Roark .................... 500 Bad Debt Expense........................................ 500 20 Cash.................................................................... 500 Accounts Receivable—Pat Roark............... 500 PE 8–1B Feb. 25 Cash.................................................................... 25 Cash....
View Full Document

This note was uploaded on 04/30/2011 for the course ACCT 2331 taught by Professor Staff during the Spring '08 term at University of Houston.

Page1 / 46

Warren SMChap08 - 463 CHAPTER 8 RECEIVABLES EYE OPENERS 1 Receivables are normally classified as(1 accounts receivable(2 notes receivable or(3

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online