Page 399 - Accounting Principles (A Business Perspective)

9. Receivables and payables

d. All equal.
Maxwell Company records its sales taxes in the same account as sales revenues. The sales tax rate is 6 per cent.
At the end of the current period, the Sales account has a balance of USD 265,000. The amount of sales tax payable

is:
a. USD 12,000.
b. USD 15,000.
c. USD 15,900.
d. USD 18,000.
Dawson Company sells fax machines. During 2010, the company sold 2,000 fax machines. The company
estimates that 5 per cent of the machines require repairs under warranty. To date, 30 machines have been repaired.

The estimated average cost of warranty repairs per defective fax machine is USD 200. The required amount of the
adjusting entry to record estimated product warranty payable is:
a. USD 400,000.
b. USD 6,000.
c. USD 14,000.
d. USD-0-.
To compute interest on a promissory note, all of the following elements must be known except:
a. The face value of the note.
b. The stated interest rate.

c. The name of the payee.
d. The life of the note.
e. None of the above.
Keats Company issued its own USD 10,000, 90-day, non interest-bearing note to a bank. If the note is
discounted at 10 per cent, the proceeds to Keats are:
a. USD 10,000.
b. USD 9,000.

c. USD 9,750.
d. USD 10,250.
e. None of the above.
Now turn to “Answers to self-test” at the back of the chapter to check your answers.
Questions

➢ In view of the difficulty in estimating future events, would you recommend that accountants wait
until collections are made from customers before recording sales revenue? Should they wait until
known accounts prove to be uncollectible before charging an expense account?

➢ The credit manager of a company has established a policy of seeking to completely eliminate all
losses from uncollectible accounts. Is this policy a desirable objective for a company? Explain.

➢ What are the two major purposes of establishing an allowance for uncollectible accounts?

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