Accounting Ch. 7
Which one of the following is not an accurate description of Allowance for Doubtful Accounts?
Income statement account
If a company uses the direct write-off method of accounting for bad debts,
It will record bad debt expense only when an account is determined to be uncollectible.
If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?
It will report accounts receivable in the balance sheet at their net realizable value
On November 2, 2016, Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on Quaint's 2016 net income and balance sheet totals assuming the allowance method is used to account for bad debts?
No effect on net income; no effect on total assets
When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?
No effect on overall assets or equity.
What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method?
Assets and owners' equity decrease.
Which one of the following is not an accurate statement regarding the direct write-off method of accounting for bad debts?
The allowance method for bad debts violates the matching principle, but the direct write-off method does not.
The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that is not compounded is
$ 2,520
Comfort Shoes received a promissory note from a customer on April 1, 2016. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2016?
$120
Verilux Company sold merchandise to Flight Corp. on November 1, 2016, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2016. What amount should Verilux recognize as interest revenue on the maturity date of the note?
$175.00
If Rope Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company, its credit card sales during the period were:
$25,000
Lynx Corp. The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016)1,300Estimated amount of uncollectible accounts based on aging analysis14,000 If Lynx Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?
11,000
Benton Corporation The data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016$334,000Credit sales during 2016850,000Collections from credit customers during 2016725,000Customer accounts written off as uncollectible during 201612,000Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts)1,700Estimated uncollectible accounts based on an aging analysis13,200 If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016?
11,500
Espat Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2016. Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by $10,000 during 2016. Rounded to two decimal places, what is Espat's accounts receivable turnover rate for 2016?
11.03
Verilux Company sold merchandise to Flight Corp. on November 1, 2016, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2016. What amount should Verilux recognize as interest revenue on December 31, 2016?
116.67
Lynx Corp. The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016)1,300Estimated amount of uncollectible accounts based on aging analysis14,000 If Lynx Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2016?
12,700
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on the maturity date of the note?
120
Benton Corporation The data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016$334,000Credit sales during 2016850,000Collections from credit customers during 2016725,000Customer accounts written off as uncollectible during 201612,000Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts)1,700Estimated uncollectible accounts based on an aging analysis13,200 If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment?
13,200
On January 1, 2016, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2016. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The net realizable value of receivables appearing on the 2016 balance sheet will amount to:
14,155
Lynx Corp. The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016)1,300Estimated amount of uncollectible accounts based on aging analysis14,000 If Lynx Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
156,000
Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000; the terms are 90 days and 9% interest. What is the total amount of interest that Genuine Parts will receive when the note is paid?
180
Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is
2100
The following data concerns Wang Corporation for 2016: Credit sales during the year$1,600,000Accounts Receivable—December 31, 2016235,000Allowance for Doubtful Accounts—December 31, 201618,000Bad debt expense for the year11,000 What amount will Wang show on its year-end balance sheet for the net realizable value of its accounts receivable?
217,000
Hide or show questionsProgress:11/64 items Mellon Corporation The data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit)$1,500,000Sales returns60,000Accounts Receivable (December 31, 2016)250,000Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 20163,000Estimated amount of uncollectible accounts based on an aging analysis31,000 If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
219,000
The data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit)$1,500,000Sales returns60,000Accounts Receivable (December 31, 2016)250,000Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 20163,000Estimated amount of uncollectible accounts based on an aging analysis31,000 If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2016?
28,000
Mellon Corporation The data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit)$1,500,000Sales returns60,000Accounts Receivable (December 31, 2016)250,000Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 20163,000Estimated amount of uncollectible accounts based on an aging analysis31,000 If Mellon estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2016?
28,800
Mellon Corporation The data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit)$1,500,000Sales returns60,000Accounts Receivable (December 31, 2016)250,000Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 20163,000Estimated amount of uncollectible accounts based on an aging analysis31,000 If Mellon uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?
31,800
The data presented below is for Falconi, Inc. for 2016. Credit sales during the year$2,100,000Accounts receivable—December 31, 2016395,000Allowance for doubtful accounts—December 31, 201620,000Bad debt expense for the year17,000 What amount will Falconi show on its year-end balance sheet for the net realizable value of its accounts receivable?
375,000
Hide or show questionsProgress:10/64 items Benton Corporation The data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016$334,000Credit sales during 2016850,000Collections from credit customers during 2016725,000Customer accounts written off as uncollectible during 201612,000Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts)1,700Estimated uncollectible accounts based on an aging analysis13,200 What is the balance of Accounts Receivable at December 31, 2016?
447,000
Hide or show questionsProgress:23/64 items Music Corporation The data below is for Music Corporation for 2016. Accounts receivable—January 1, 2016$236,000Credit sales during 2016 - 820,000Collections from credit customers during 2016 - 590,000Customer accounts written off as uncollectible during 2016 - 8,000Allowance for doubtful accounts—January 1, 20168,700Estimated uncollectible accounts based on an aging analysis9,600 What is the balance of Accounts Receivable at December 31, 2016?
458,000
On January 1, 2016, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2016. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The amount of bad debts expense recognized in the 2016 income statement will be:
595
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on December 31, 2016 (if a 360 day year is assumed)?
60
On January 15, 2016, the accounts receivable balance was $7,000 and the balance in the allowance for doubtful accounts was $700. On January 16, 2016, a $200 uncollectible account was written-off. The net realizable value of accounts receivable on January 16 immediately after the write-off is:
6300
Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2016. On January 1, 2016, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during 2016. Rounding to two decimal places, what is Lasiter's accounts receivable turnover rate for 2016?
7.69
Music Corporation The data below is for Music Corporation for 2016. Accounts receivable—January 1, 2016$236,000Credit sales during 2016820,000Collections from credit customers during 2016590,000Customer accounts written off as uncollectible during 20168,000Allowance for doubtful accounts—January 1, 20168,700Estimated uncollectible accounts based on an aging analysis9,600 If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016?
8900
Music Corporation The data below is for Music Corporation for 2016. Accounts receivable—January 1, 2016$236,000Credit sales during 2016820,000Collections from credit customers during 2016590,000Customer accounts written off as uncollectible during 20168,000Allowance for doubtful accounts—January 1, 20168,700Estimated uncollectible accounts based on an aging analysis9,600 If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment?
9600
Lynx Corp. The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016)1,300Estimated amount of uncollectible accounts based on aging analysis14,000 If Lynx Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2016?
9700
Comfort Shoes received a promissory note from a customer on April 1, 2016. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is
A decrease to Notes Receivable
Textbooks.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited during September. The effect on the accounting equation to record the sales and deposits will include
An increase in Collection Fee Expense for $240
Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance?
Assets and owners' equity decrease.
On July 1, 2016, Falcon Company received a $20,000 promissory note for services from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2017. The effect on Falcon's financial statements on July 1, 2016 is as follows
Assets increase; owners' equity increases
If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease?
At the end of the accounting period when an adjusting entry for bad debts is recorded
Where can the amounts needed to compute the accounts receivable turnover ratio be found?
Both (a) and (b).
Hide or show questionsProgress:35/64 items Which one of the following is an accurate description of Allowance for Doubtful Accounts?
Contra account
The entry required to recognize the bad debts expense for 2016 will act to:
Decrease total assets and retained earnings
What should a company do to improve its accounts receivable turnover rate?
Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?
Increase Cash, $8,180, increase Interest Revenue, $180, and decrease Notes Receivable, $8,000
Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a customer. The credit card company charges a 5% service charge. Recording the transaction in the company's accounting records will have what effect on the accounting equation?
Increase assets and equity by $4,750
On July 1, 2016, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2017. If Falcon's fiscal year ends September 30, 2016, an adjusting entry is needed to:
Increase interest receivable by $250
Discounting a note receivable
Is the process of selling a promissory note
When a note receivable has been discounted by a company
It may be shown as a contingent liability in the footnotes.
The data presented below is for Falconi, Inc. for 2016. Credit sales during the year$2,100,000Accounts receivable—December 31, 2016295,000Allowance for doubtful accounts—December 31, 201628,000Bad debt expense for the year17,000 What is the effect on liquidity when Falconi records its estimate for bad debt expense using the allowance method?
Liquidity decreases
The party to a promissory note that agrees to repay money on the maturity date of the note is called the
Maker of the note
Utah Co. sold merchandise to Big Sky Corp. on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What is the actual maturity date of the note?
March 1, 2017
Assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will act to:
Not affect total assets or total equity
Which one of the following statements is true?
The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the subsidiary ledger for accounts receivable.
When a company discounts an interest-bearing note at a bank with recourse:
The company has a contingent liability from the time the note is discounted until its maturity date.
During 2016, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change?
The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections.
Hide or show questionsProgress:15/64 items Allowance for Doubtful Accounts represents:
The difference between the gross amount of accounts receivable and the net realizable value of accounts receivable
The following information was presented in the balance sheet of Gloria Company as of December 31, 2016: Trade accounts receivable, net of allowance for uncollectibles of $100,000 $1,600,000 Which one of the following statements is true?
The net realizable value of Gloria's accounts receivable is $1,600,000.
Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net realizable value of accounts receivable on the balance sheet?
The percentage of accounts receivable approach
Which of the following statements is true regarding the two allowance methods used to account for bad debts?
The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account.
Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement?
The percentage of net credit sales approach
How will the payee of the promissory note record the note on its books?
The promissory note will be recorded as an asset.