Accounting Chapter 7

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

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:

Accounts Receivable - AZC for $5,100

To record a sale on account, the company should debit:

Accounts Receivable.

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

April 16

If an account receivable balance previously written off using the direct write-off method is later collected in full, the entry to record the payment must include a credit to:

Bad Debts Expense

On August 1, Hanes Co. determines that it cannot collect $150 from a customer. Hanes uses the direct write-off method. Hanes will record the write-off of this account by debiting:

Bad Debts Expense for $150.

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

True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts.

False

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

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.

True or false: The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

True

The two most common receivables are ___________________ receivables and ______________________ receivables.

accounts notes

A(n) ____________ is a supplementary record created to maintain a separate account for each customer.

accounts receivable ledger

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

aging

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

Zion Company sells merchandise on account to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a:

debit to Accounts Receivable. credit to Sales.

Finish Co. uses the allowance method based on the percent of sales method to account for bad debts. At the end of 2010, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish 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:

$6,000

Net sales for a company are $250,000. Average accounts receivable are $10,000. The accounts receivable turnover for this company is .

25

In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit) to Accounts Receivable.

credit

On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a:

credit to Accounts Receivable - A. Winds. debit to Bad Debts Expense.

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.

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

Companies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include:

to reduce risk of nonpayment. to quickly generate cash.

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

total uncollectible accounts

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.

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

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the ___ ____ ____account before recording a debit to the Cash account.

bad debts expense

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

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

Flash Co. uses the allowance method based on percent of sales 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

A. Stine Co. previously wrote off a $200 bad debt from Thorn Co. using the direct write-off method. On October 1, Stine unexpectedly receives a check in the amount of $200 from Thorn Co. The entry to record this receipt of $200 will include a:

credit to Bad Debts Expense. debit to Cash.

A is an amount due from another party.

receivable

An accounts receivable ledger:

records journal entries that affect accounts receivable. is a supplementary record to maintain an account for each customer.

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.

The ____________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense.

direct write-off

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

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

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

Match the definitions to the appropriate terms.

Accounts receivable ----------> Amounts due from customers for credit sales Notes receivable ----------> An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates Receivable ----------> Amount due from another party

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

contra

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