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Discussion Questions

  1. What are the three classifications of receivables?
  2. Dan’s Hardware is a small hardware store in the rural township of Twin Bridges. It rarely extends credit to its customers in the form of an account receivable. The few customers who are allowed to carry accounts receivable are long-time residents of Twin Bridges with a history of doing business at Dan’s Hardware. What method of accounting for uncollectible receivables should Dan’s Hardware use? Why?
  3. What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts, and is its normal balance a debit or a credit?
  4. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $673,400 and Allowance for Doubtful Accounts has a balance of $11,900. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance sheet.
  5. A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s sales on account. After seven years, the balance in Allowance for Doubtful Accounts has become very large in relation to the balance in Accounts Receivable. Give two possible explanations.
  6. Which of the two methods of estimating uncollectibles provides for the most accurate estimate of the current net realizable value of the receivables?
  7. Neptune Company issued a note receivable to Sailfish Company. (a) Who is the payee? (b) What is the title of the account used by Sailfish Company in recording the note?
  8. If a note provides for payment of principal of $85,000 and interest at the rate of 6%, will the interest amount to $5,100? Explain.
  9. The maker of a $240,000, 6%, 90-day note receivable failed to pay the note on the due date of November 30. What accounts should be debited and credited by the payee to record the dishonored note receivable?


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