1 Criss Company has a credit balance of $2,200 in Allowance for Doubtful Accounts before adjustment. The estimated uncollectibles under the percentage of receivables basis is $5,800. Prepare the adjusting entry.
2. How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method?
3. Alice Hamm, the vice president of sales for Holiday Pools and Spas, wants the company's credit department to be less restrictive in granting credit. “How can we sell anything when you guys won't approve anybody?” she asks. Discuss the pros and cons of “easy credit.” What are the accounting implications?
4. Your roommate is uncertain about the advantages of a promissory note. Compare the advantages of a note receivable with those of an account receivable.
5. How may the maturity date of a promissory note be stated?
6. Compute the missing amounts for each of the following notes.
Principal Annual Interest Rate Time Total Interest
(a) 9% 90 days $ 270
$30,000 8% 3 years (d)
$60,000 (b) 5 months $2,500
$50,000 11% (c) $2,750
7. JCPenney Company accepts both its own credit cards and national credit cards. What are the advantages of accepting both types of cards?
8. An article in the Wall Street Journal indicated that companies are selling their receivables at a record rate. Why do companies sell their receivables?
9. Calico Corners decides to sell $430,000 of its accounts receivable to First Central Factors Inc. First Central Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Calico Corners makes to record this sale.
10. How can the amount of collections from customers be determined?