IP#7

The total interest that is due at maturity on a $1,500, 12 percent, 120-day note is

$60

The allowance method of accounting for bad debts has the following advantages over the direct write-off method including: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

*Records estimated bad debts expense in the period when the related sales are recorded *Reports accounts receivable on the balance sheet at the estimated amount of cash to be collected

Sellers allow customers to use credit cards for all of the following reasons: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

*seller does not have to decide who gets credit *seller receives cash sooner than if credit is granted directly to customer(I.E. Best Buy credit card, Victoria Secret Credit card) *may allow seller to increase sales volume

A 60-day, 11 percent, promissory note dated June 10 matures on

August 9

On December 1, after making a concerted effort, management determines that it will be unable to collect $1,200 owed to it by one of its customers. This company uses the allowance method to account for uncollectible accounts. Prepare the necessary December 1 journal entry to write off this $1,200 uncollectible account journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Allowance for doubtful accounts $1200 Credit Accounts Receivable $1200

Cosmo Company reported credit sales of $345,000 for the calendar year in its first year of operations. At December 31, customers buying on credit owed $35,000 to the company. Based on the experience of similar businesses, management estimates that $3,500 of its accounts receivable will be uncollectible. Prepare the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Bad Debt Expense $3500 Credit Allowance for doubtful accounts $3500

On March 15, Viking Office Supply agrees to accept $1,200 in cash along with a $2,800, 60-day, 15 percent note from one of its customers to settle his $4,000 past-due account. Prepare the March 15 entry for Viking Office Supply by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Cash $1200 Notes Receivable $2800 Credit Accounts Receivable $4000

On January 15, 2013, Ross Furniture, Inc., accepts a $5,000, 180-day, 10 percent note from a customer at the time of a product sale. Prepare the January 15 entry for Ross Furniture by selecting the account names and dollar amounts from the drop-down menus.

Debit Notes receivable 5000 Credit Sales 5000

Messing Company has an agreement with a third-party credit card company, which calls for cash to be received immediately upon deposit of customers' credit card sales receipts. The credit card company receives 3.5 percent of card sales as its fee. Messing has $4,000 in credit card sales on January 1. Prepare the January 1 journal entry for Messing Company by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit: *Cash $3,860 *Credit Card Expense($4,000 × 3.5%) = $140 Credit: *Sales $4,000

On July 18, Jerry Pope signed a note when he borrowed $1,200 at 12 percent for 30 days from Second National Bank. In this situation:

Pope is the maker of the note

The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that

The adjusted balance is equal to the estimate of the uncollectible accounts receivable.

Marion Industries has an average accounts receivable turnover ratio of 12 times per year whereas most of its competitors have a ratio nearer to 8 times. This suggests that Marion's management should consider:

using more liberal credit terms to increase sales