acct chapter 8

The days to collect ratio is computed as ______

365 divided by the Receivable Turnover Ratio

Which of the following are contra-asset accounts? (Check all that apply.)

Accumulated Depreciation Allowance for Doubtful Accounts

Which method requires first estimating the desired amount for the Allowance for Doubtful Accounts and then determining the amount of the expense required to get to this desired balance given the amount of the unadjusted balance?

Aging of accounts receivable method

Why is Bad Debt Expense an estimate?

GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.

Why would a company debit Interest Receivable?

It generated interest on its notes receivable which will be collected in a later accounting period.

What is occurring if a company is debiting Cash and crediting Notes Receivable?

It is collecting the principal on amounts lent earlier.

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.)

Sales Revenue Depreciation Expense Bad Debt Expense

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

Which of the following is recorded with a debit to Cash and a credit to Notes Receivable?

The receipt of the principal payment

What effect does the collection of a note receivable, excluding interest, have on the accounting equation?

Total assets remain the same.

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

additional sales revenue

Which of the following is contra-asset account?

allowance for doubtful accounts

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record ______.

an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generate

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record ______.

an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generated in December

On March 1, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Scents' entry to record the loan of $1,000 to its employee includes a ______. (Check all that apply.)

credit to Cash of $1,000 debit to Notes Receivable of $1,000

The receipt of an interest payment

debit Cash and credit Interest Receivable

The receipt of the principal payment

debit Cash and credit Notes Receivable

The adjusting entry to record interest owed

debit Interest Receivable and credit Interest Revenue

The issuance of a note

debit Notes Receivable and credit Cash

The correct journal entry for the collection of a note receivable includes a ______. Assume the collection of interest is recorded separately. (Select all that apply.)

debit to Cash credit to Notes Receivable

Bad Debt Expense ______. (Check all that apply.)

is a cost of extending credit to customers is an estimate

When accounting for accounts receivable, a primary objective is to ______.

not overstate assets and stockholders' equity by the estimated amount of bad debt

Bad Debt Expense is a ______.

temporary account so its balance is closed (zeroed out) at the end of the accounting period

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______. (Select all that apply.)

Allowance for Doubtful Accounts of $1,000 Bad Debt Expense of $950

ABC, Inc.'s unadjusted trial balance included Accounts Receivable $80,000 debit; Allowance for Doubtful Accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging of accounts receivable method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report ______. (Check all that apply.)

Allowance for Doubtful Accounts of $8,000 on the balance sheet Bad Debt Expense of $7,250 on the income statement

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method?

An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.

What would be the effect of forgetting to record the adjusting entry for estimated bad debts?

Assets and stockholders' equity would be overstated.

Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible. This adjusting entry includes a debit to ______.

Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000

Allowance for Doubtful Accounts is a(n)_______-asset account and has a normal ___________balance.

contra, credit

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

credit to Allowance for Doubtful Accounts of $900 debit to Bad Debt Expense of $900

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.

estimated amount of uncollectibles was greater than the amounts actually written off

A disadvantage of extending credit to customers is that the cost may ______ the additional sales revenue received through credit transactions.

exceed

An adjusting entry to accrue for interest earned is often needed when a company has ______.

note receivable

A receivable write-off removes a non-paying customer's account receivable and ______.

removes the same amount from Allowance for Doubtful Accounts

An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______.

the same period the related credit sales are recorded

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a debit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

Notes receivable are used for ______. (Check all that apply.)

lending money to individuals or businesses extending payment periods selling large dollar-value items