Reference no: EM13745989
(Learning Objectives 2, 3, 4, 5, 6: Apply GAAP for revenue recognition; account for accounts receivable, uncollectible accounts, and notes receivable; show how to speed up cash flow from receivables) Answer these questions about receivables and uncollectibles. For the true-false questions, explain any answers that turn out to be false.
1. True or false? Credit sales increase receivables. Collections and write-offs decrease receivables.
2. True or false? A proper way to express credit terms is “FOB shipping point.”
3. Which receivables figure—the total amount that customers owe the company, or the net amount the company expects to collect—is more interesting to investors as they consider buying the company’s stock? Give your reason.
4. Show how to determine net sales revenue.
5. Show how to determine net accounts receivable.
6. True or false? The direct write-off method of accounting for uncollectibles understates assets.
7. Carolina Bank lent $150,000 to Sumter Company on a six-month, 6% note. Which party has interest receivable? Which party has interest payable? Interest expense? Interest revenue? How much interest will these organizations record one month after Sumter Company signs the note?
8. When Carolina Bank accrues interest on the SumterCompany note, show the directional effects on the bank’s assets, liabilities, and equity (increase, decrease, or no effect).
9. True or False? Credit card sales increase accounts receivable.
10. True or False? Companies with strong liquidity usually factor receivables.
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