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Exam 7: Receivables and Investments

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Question 91

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Which one of the following is an investing activity on the statement of cash flows?

A) Collection of accounts receivable
B) Purchase of long-term investments
C) Receipt of interest
D) Receipt of dividends

E) All of the above
F) B) and D)

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Question 92

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Assume that on December 13,2017,Royal Company sells a computer to Savco Corp.at an invoice price of $25,000.Because Savco is short of cash,it gives Royal a 90-day,12% promissory note.(Assume a 360-day year for interest calculations. ) ? Required 1)What is the total amount of interest that will be due on the maturity date? 2)What adjustments will Royal make to record receipt of the note? 3)If Royal has a December 31 year-end,what adjusting journal entry is needed to record interest due but not yet received? 4)How much interest will Royal earn in 2017? 5)On what day will the note mature? 6)What adjustments will Royal record on the maturity date?

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1)$25,000 × 0.12 × 90/360 = $750
?
2)
?
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Question 93

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Beatrice Equipment Beatrice Equipment sells merchandise only on credit.For the year ended December 31,2017,the following data are available: ?? $\begin{array}{lr}\text { Sales } & \$ 2,400,000 \\\text { Sales returns and allowances } & 60,000 \\\text { Accounts Receivable-January 1, 2017 } & 270,000 \\\text { Allowance for doubtful accounts-January 1, 2017 } & 25,600 \\\text { Collections during 2017 } & 2,426,300 \\\text { Accounts written off as uncollectible during 2017 } & 23,700\end{array}$ -Refer to the data for Beatrice Equipment. ? Determine the balance of Accounts Receivable at December 31,2017.

The amount of cash the maker is to pay the payee on the maturity date of the note is called the __________.

Hawthorne Industries' comparative balance sheets included accounts receivable of $221,400 at December 31,2016,and $205,900 at December 31,2017.Sales reported on Hawthorne's 2017 income statement amounted to $2,550,000.What amount of cash collections will Hawthorne will report in the Operating Activities category of its 2017 statement of cash flows assuming that the direct method is used? Show your calculations.

A note discounted with recourse means that if the original customer fails to pay the bank the total amount due on the maturity date of the note,the company that transferred the note to the bank is liable for the full amount.

Explain the distinction between a note receivable and an account receivable.

When Company X buys stock in Company Y,Company X is referred to as the investee.

Hemmer Company received a 12%,six-month promissory note with a face amount of $10,000 from Stutfeld Company for the sale of merchandise on December 1,2017. A) Which party is the maker? $\underline{\quad\quad}$ B) Which party is the payee? $\underline{\quad\quad}$ C) Determine the maturity value of the note.

If Rope Inc.receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company,its credit card sales during the period were

A subsidiary is a separate legal entity that is owned or controlled by another entity.

The accounts receivable turnover ratio is computed by dividing __________ by average accounts receivable.

What is the distinguishing characteristic between accounts receivable and notes receivable?

Benton Corporation The data below are for Benton Corporation for 2017. ? $\begin{array} { l r } \text { Accounts Receivable-January 1,2017 } & \$ 334,000 \\\text { Credit sales during } 2017 & 850,000 \\\text { Collections from credit customers during 2017 } & 725,000 \\\text { Customer accounts written off as uncollectible during 2017 } & 12,000 \\\text { Allowance for doubtful accounts (credit balance) } & \\\text { (after write-off of uncollectible accounts) } & 1,700 \\\text { Estimated uncollectible accounts based on an aging analysis } & 13,200\end{array}$ ? -Refer to the data for Benton Corporation. ? What is the balance of Accounts Receivable at December 31,2017?

The comparative financial statements for the years ended December 31,2017 and 2016 for Sophia Company reported the following information. Answer these questions concerning Sophia Company's receivables: $\begin{array}{l}\text { Balance Sheet: } & \underline{2017} & \underline{2016} \\\text { Cash and cash equivalents } & \$ 77,000 & \$ 81,600 \\\text { Accounts receivables, less allowance for doubtful } & & \\\text { accounts of } \$ 80(2017) \text { and } \$ 82(2016) & 2,700 & 2,300\\\\\text { Income Statement: }\\\text { Net sales for the year } & \$ 9,700 & \$ 8,800 \\\text { Net income for the year } & 950 & 1,070\\\\\text { Statement of Cash Flows:}\\\text { Net cash provided by operating activities}&\$1,000&\$1,100\\\text { Increase in accounts receivable}&(460)&(280)\end{array}$ A)What is the gross amount of accounts receivable for Sophia at December 31,2017? Why is this amount different than the amount of receivables shown in the 2017 column of the balance sheet? ? B)What is the net realizable value of accounts receivable for Sophia at December 31,2017? What does this amount represent?

Corrigan Corp.purchased 1,000 shares of Microsoft common stock.What will determine whether the shares are classified as current assets or noncurrent assets?

If a company discounts a note at a bank,but still is contingently liable for the maturity value,then the note was discounted with __________.

The data presented below are for Falconi,Inc.for 2017. $\begin{array}{lr}\text { Credit sales during the year } & \$ 2,100,000 \\\text { Accounts receivable-December } 31,2017 & 295,000 \\\text { Allowance for doubtful accounts-December } 31,2017 & 28,000 \\\text { Bad debts expense for the year } & 17,000\end{array}$ -What is the effect on net accounts receivable when Falconi records its estimate for bad debts expense using the allowance method?

On November 2,2017,Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on Quaint's 2017 net income and balance sheet totals assuming the allowance method is used to account for bad debts?

The difference between the principal amount of a note and its maturity value is called __________.