Accounting 2101 Chapter 7 Smartbook

Conroy Company uses the allowance method to account for bad debts. During 2010, Conroy determined that a balance of $200 for Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20—the due date?

$20 ($2,000 x 6% x 60/360)

Lani Co. uses the allowance method to account for bad debts. At the end of 2010, their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$4,400

Leo Co. uses the allowance method to account for bad debts. At the end of 2010, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400 ($25,000 x 2% = $500 --> $500 - $100 = $400)

Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate's unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$5,000

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

$50 ($5,000 x 4% x 90/360)

Flash Co. uses the allowance method to account for bad debts. At the end of 2010, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$7,500

_____ (Bad/Invalid) _____ (collectible/debts) are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

-Bad -Debts

Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal.

-Debit to Cash -Credit to Accounts Receivable

The _____ (maker/signer) of the note is the one that signed the note and promised to pay at maturity. The _____ (maker/payee) of the note is the person to whom the note is payable.

-Maker -Payee

On November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On 12/31, the appropriate adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 would include a credit to:

-Notes Receivable for $2,000 -Interest Receivable for $20. -Interest Revenue for $10.

To compute interest due on a maturity date, you should multiply which of the following factors?

-Principal -Time expressed in fraction of year -Interest rate

Bad debts are:

-an expense of selling on credit. -accounts of customers who do not pay. -also called uncollectible accounts.

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note and fails to pay. The journal entry that Ian would record on the due date would include a:

-debit to Accounts Receivable - Ali for $1,025. -credit to Interest Revenue for $25. -credit to Notes Receivable for $1,000.

P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

-debit to Cash for $480. -credit to Sales for $500. -debit to Credit Card Expense for $20.

On January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a:

-debit to Cash for $5,025. -credit to Note Receivable for $5,000 -credit to Interest Revenue for $25.

On July 10, Yao Co. collects $740 from Ean, Inc. from a prior credit sale. This entry would be recorded by Yao with a:

-debit to Cash. -credit to Accounts Receivable.

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 account. Eli's journal entry to record this transaction on November 1, would include a:

-debit to Notes Receivable for $6,000. -credit to Accounts Receivable for $6,000.

To compute interest due on a maturity date, multiply _____ (principal/note) times _____ (interest/dividends) times time expressed in fraction of year.

-principal -interest

When an account previously written off is later collected, two journal entries are required. The first journal entry is to _____ the account, and the second journal entry is to record _____ of payment.

-reinstate -receipt

Net sales for a company are $250,000. Average accounts receivable are $10,000. The accounts receivable turnover for this company is _____.Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to:

25

Acel Co. uses the allowance method to account for bad debts. Early in 2010, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 from CTR. The entries to record the receipt of cash on October 21 would include a debit to: Select two answers.

Accounts Receivable. Cash.

Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the _____ account:

Accounts receivable

Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a debit to:

Allowance for Doubtful Accounts

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16 (February 28th - February 15th = 13 days + 31 days for March = 44 days; 60 total days - 44 days = 16; therefore, April 16.)

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Cash in the amount of $10,100

J. Whitlock Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into Whitlock's bank account less a 5% fee. The entry to record this sales transaction would include a debit to:

Credit Card Expense in the amount of $50

True or false: The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

False

True or false: When the maker of a note pays at maturity, the note is said to be dishonored.

False

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20.

Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to:

Interest Revenue for $37.50. (The adjusting entry for Lion Company is to credit interest revenue for $37.50 [$15,000 x .06 x (15/360)]. Interest receivable would be debited)

A 90-day note is signed on October 21. The due date of the note is:

January 19

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to:

Notes Receivable in the amount of $5,000

True or false: A note is honored when it is paid in full.

True

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the _____ account.

accounts receivable

The _____ of accounts receivable method uses several percentages to estimate the allowance.

aging

The _____ method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts—mainly, the relationship between accounts receivable and the allowance account.

aging of accounts receivable

The allowance for doubtful accounts is a(n) _____ (current/contra/opposite) asset account and has a normal credit balance.

contra

At period end, Bradon Company estimates that $1,200 of its accounts receivable balance is uncollectible. Bradon uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a _____ (debit/credit) to Allowance for Doubtful Accounts.

credit

Tunes Company determines that a customer balance of $250 from Able Co. is uncollectible. Tunes uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a _____ (debit/credit) to the Allowance for Doubtful Accounts.

debit

Zino Company determines that a customer balance of $200,from Hollis Co. is uncollectible. Zino uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a:

debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

At year-end, Yates Company estimates that $1,500 of its accounts receivable balance is uncollectible. Yates uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a:

debit to Bad Debts Expense and credit to Allowance for Doubtful Accounts

When a note's maker is unable or refuses to pay at maturity, the note is considered _____

dishonored

The principal and interest of a note are due on its maturity date. The maker of the note usually _____ (makes/honors/dishonors) the note and pays it in full.

honors

The _____ method of estimating allowance for doubtful accounts is based on the idea that a given percent of a company's credit sales for the period are uncollectible.

percentage of sales

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called:

realizable value

On December 1, Christy Co. accepted a 60-day, 6%, $1,000 note due January 30. On December 31, the appropriate year-end adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 (assuming no reversing entry was made) would include a credit to:

-Interest Receivable for $5. -Interest Revenue for $5. -Notes Receivable for $1,000.

The advantages of using the allowance method to account for bad debts include which of the following?

-Matches expenses with related sales -Reports accounts receivable balance at net realizable value

Match the following terms to the appropriate definitions. -Promissory note -Principal -Interest -Maker -Payee -Maturity date

-Promissory note: Written promise to pay a specified amount of money -Principal: Amount that the signer agrees to pay back, not including interest -Interest: Charge from using money loaned from one entity to another -Maker: One who signed the note and promised to pay at maturity -Payee: The person to whom the note is payable -Maturity date: Day that the principal and interest must be paid

On September 1, Horn Co. accepted a 60-day, 5% note in the amount of $3,000 from a customer. On the due date of the note, the customer dishonors the note and fails to pay. The journal entry that Horn would make on the due date would include debit to:

Accounts Receivable for $3,025 (Interest = $3,000x.05x(60/360)=$25. Accounts receivable is debited for $3,025, for the note plus the interest.)

The _____method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

The _____ (allowance/direct write-off) method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

To record a customer's check in full payment for a sale that was made the prior month, the company should debit the _____ account.

cash

A company sells merchandise to a customer on credit. The journal entry to record this transaction would include a debit entry to the Accounts _____ account.

receivable

The allowance for doubtful accounts is a contra asset account that equals:

total uncollectible accounts