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Exam 7: Cash and Receivables

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Question 41

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Frankenstein Enterprises received two notes from customers for sales that it made to them in 2009. The notes included: Note A: Dated 5/31/09, principal of $120,000 and interest due 3/31/10. Note B: Dated 7/1/09, principal of $200,000 and interest at 8% annually, due on 4/1/10. Frankenstein had accrued interest receivable from these notes of $14,400 on its 12/31/09 balance sheet. What amount of interest revenue would Frankenstein earn on these notes during 2010?

A) Above $12,000.
B) Between $7,000 and 10,000.
C) Less than $5000.
D) None of these is correct.Note A earns 9.14% annually.During 2010, Note A is held for 3 months, so it earns $120,000 .0914 3/12 = $2,742.Note B also is held for 3 months and earns 8% annually, so $200,000 .08 4/12 = $4,000.So the total interest revenue earned in 2010 is $6,742.Note: This question requires the use of the interest rate answer solved in question 103.

E) All of the above
F) A) and C)

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Question 42

Multiple Choice

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Huckabee's 2009 receivables turnover is:

A) 3.69.
B) 5.00.
C) 5.26.
D) 3.16.

E) C) and D)
F) None of the above

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Question 43

Multiple Choice

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Drebin Security Systems sold merchandise to a customer in exchange for a $50,000, 5-year, noninterest-bearing note when an equivalent loan would carry 10% interest. Drebin would record sales revenue on the date of sale equal to:

Cash may not include:

What kind of account is the Allowance for Loan Losses in Winchester's financial statements?

On February 1, 2009, Stealth Trucks sold a diesel rig to Kansas Transports for $250,000, receiving a $50,000 down payment and a 12-month, 10% note for the balance. Principal and interest are due at maturity and the 10% interest rate reflected the market rate of interest at the time of sale. On August 1, 2009, Kansas Transports discounted the note without recourse at the First South Bank at 12% interest. Required: Prepare all required journal entries at August 1 to recognize interest revenue and the discounting of the note.

What accounts receivable balance would Dinty report in its first year-end balance sheet?

Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.

How might a company with loan receivables like Winchester be able to manage earnings in applying generally accepted accounting principles?

The journal entry to replenish the petty cash fund includes:

Which of the following does not change the balance in accounts receivable?

Beethoven Music Company started business in March, 2009. Sales for its first year were $400,000. Beethoven priced its merchandise to yield a 45% gross profit based on sales dollars. Industry statistics suggest that 10% of the merchandise sold to customers will be returned. Beethoven estimated its sales returns based on the industry average. During the year, customers returned $30,000 in sales. Beethoven uses a perpetual inventory system. Required: Prepare summary journal entries to record (1) sales, (2) sales returns, and (3) the year-end adjusting entry for estimated sales returns.

Using the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable.

Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At the end of May, the general ledger checking account showed a balance of $1,360 and the bank statement showed a bank balance of $1,445. Outstanding checks totaled $350 and deposits in transit were $150. The bank statement listed service charges of $30 and NSF checks totaling $85. The corrected cash balance is:

Is there any evidence in HP's disclosures above that are consistent with earnings management?

COSO defines internal control as a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in:

Using a T-account for the Allowance for Loan Losses, identify the changes in the account during 2009.

Frasquita acquired equipment from the manufacturer on 6/30/09 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/10 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2009 year-end financial statements, what would the manufacturer record in its 2009 income statement for this transaction?

Rahal's accounts receivable at December 31, 2009, are:

Briefly compare and contrast the two approaches to estimating bad debt expense. In your answer, indicate which approach, if either, is superior.