Chapter 7

Garner, Inc. uses the allowance method. At December 31, 2021, the company's balance sheet reports Accounts Receivable, Net in the amount of $27,200. On January 2, 2022, Garner writes off a $2,400 customer account balance when it becomes clear that the customer will never pay. What is the amount of Accounts Receivable, Net immediately after the write-off? A. $2,400. B. $27,200. C. $24,800 D. $29,600

B. $27,200.

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable: $442,000 Debit Allowance for Doubtful Accounts: 1,320 Debit Net Sales: 2,170,000 Credit All sales are made on credit. Based on past experience, the company estimates 2.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A. Debit Bad Debts Expense $8,840; credit Allowance for Doubtful Accounts $8,840. B. Debit Bad Debts Expense $43,400; credit Allowance for Doubtful Accounts $43,400. C. Debit Bad Debts Expense $42,080; credit Allowance for Doubtful Accounts $42,080. D. Debit Bad Debts Expense $10,160; credit Allowance for Doubtful Accounts $10,160. E. Debit Bad Debts Expense $44,720; credit Allowance for Doubtful Accounts $44,720.

B. Debit Bad Debts Expense $43,400; credit Allowance for Doubtful Accounts $43,400.

On September 1, Martin Inc. makes a $26,000, 90-day, 7.5% cash loan to Stine Company. Martin's entry to record the collection of the note and interest at maturity should be: (Use a 360-day year.) A. Debit Cash $26,487.50; credit Notes Receivable for $26,487.50. B. Debit Cash $26,487.50; credit Interest Revenue $487.50; credit Notes Receivable $26,000. C. Debit Cash $27,950; credit Interest Revenue $1,950, credit Notes Receivable $26,000. D. Debit Notes Payable $26,000; Debit Interest Expense $1,950; credit Cash $27,950. E. Debit Cash for $26,000; credit Notes Receivable $26,000.

B. Debit Cash $26,487.50; credit Interest Revenue $487.50; credit Notes Receivable $26,000.

Deacon Company has provided the following information after year-end adjustments: • Allowance for doubtful accounts was $11,000 at the beginning of the year and $30,000 at the end of the year. • Accounts receivable were $80,000 at the beginning of the year and $420,000 at the end of the year. • Accounts written off as uncollectible totaled $20,000. • Net sales totaled $2,700,000. • Sales discounts were $100,000. What was the amount of Deacon's bad debt expense for the year? A. $19,000. B. $1,000. C. $39,000. D. $20,000.

C. $39,000.

Deacon Company has provided the following information prior to any year-end bad debt expense adjustment: Cash sales, $169,000 Credit sales, $469,000 Selling and administrative expenses, $129,000 Sales returns and allowances, $49,000 Gross profit, $509,000 Accounts receivable, $295,000 Sales discounts, $33,000 Allowance for doubtful accounts credit balance, $3,100 Deacon Company prepares an aging of accounts receivable and the result shows that 3% of accounts receivable is estimated to be uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded? A. $5,657. B. $5,750. C. $8,850. D. $11,950.

C. $8,850.

Which of the following statements is false regarding the Allowance for Doubtful Accounts? A. It is a contra asset account. B. It is used instead of reducing accounts receivable directly. C. It is credited when uncollectible accounts are written off. D. It is credited when bad debts expense is estimated and recorded. E. It is credited when there are recoveries of previously written off uncollectible accounts.

C. It is credited when uncollectible accounts are written off.

Using the aging approach, management estimates that 10% of the $54,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $800 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a: A. debit to Bad Debt Expense of $5,400. B. debit to Bad Debt Expense of $4,600. C. credit to Allowance for Doubtful Accounts of $6,200. D. credit to Allowance for Doubtful Accounts of $800.

C. credit to Allowance for Doubtful Accounts of $6,200.

Which of the following statements is true when using the allowance method to account for uncollectible accounts? A. The journal entry to record bad debt expense has no effect on total assets. B. The journal entry to record bad debt expense has no effect on retained earnings. C. The journal entry to write off an uncollectible account receivable decreases net income. D. The journal entry to write off an uncollectible account receivable has no effect on total assets.

D. The journal entry to write off an uncollectible account receivable has no effect on total assets.

A company uses the percent of receivables method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable: $390,000 debit Allowance for uncollectible accounts: 650 credit Net Sales 950,000 credit All sales are made on credit. Based on past experience, the company estimates that 6% of receivables are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared? A. $24,050 B. $6,400 C. $5,700 D. $23,400 E. $22,750

E. $22,750

A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value of the note is a. $10,000 b. $10,150 c. $10,900 d. $9,100

b. $10,150

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $2,000. The Accounts Receivable balance is analyzed by aging the accounts and, the amount estimated to be uncollectible is $15,000. The amount to be recorded in the adjusting entry for the bad debt expense is $15,000. a. True b. False

b. False RATIONALE: Bad debt expense = Uncollectible accounts estimate − Unadjusted allowance for doubtful debts = $15,000 − ($2,000) = $17,000​

At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year, $120 of previously written off accounts are reinstated and accounts totaling $740 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be a. $760 b. $120 c. $140 d. $740

c. $140 RATIONALE: End-of-year balance of Allowance for Doubtful Accounts = Beginning Allowance for Doubtful Accounts + Previously written off accounts reinstated − Accounts written off as uncollectibles = $760 + $120 − $740 = $140​

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include a a. credit to Bad Debt Expense b. debit to Bad Debt Expense c. debit to Allowance for Doubtful Accounts d. credit to Allowance for Doubtful Accounts

d. credit to Allowance for Doubtful Accounts

The Lowery Co. uses the direct write-off method of accounting for uncollectible accounts receivable. Lowery has a customer whose accounts receivable balance has been determined to likely be uncollectible. The entry to write off this account would be which of the following? a. debit Allowance for Doubtful Accounts; credit Accounts Receivable b. debit Sales; credit Accounts Receivable c. debit Bad Debt Expense; credit Allowance for Doubtful Accounts d. debit Bad Debt Expense; credit Accounts Receivable

d. debit Bad Debt Expense; credit Accounts Receivable

A debit balance in the Allowance for Doubtful Accounts a. is the normal balance for that account b. indicates that actual bad debt write-offs have been less than what was estimated c. cannot occur if the percentage of receivables method of estimating bad debts is used d. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

d. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

A company uses the allowance method to account for uncollectible accounts receivable. When the firm writes off a specific customer's account receivable a. total current assets are reduced b. total expenses for the period are increased c. net realizable value of accounts receivable increases d. there is no effect on total current assets or total expenses

d. there is no effect on total current assets or total expenses

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts a. liabilities decrease b. net income is unchanged c. total assets are unchanged d. total assets decrease

d. total assets decrease