Smartbook: Chapter 9 Accounting For Receivables

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

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

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana 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:

$500

Flash Co. uses the allowance 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

Match the following terms to the appropriate definitions. 1. Promissory Note 2. Principal 3. Interest 4. Maker 5. Payee 6. Maturity Date

1. Written promise to pay a specified amount of money 2. Amount that the signer agrees to pay back, not including interest 3. Charge from using money loaned from one entity to another 4. One who signed the note and promised to pay at maturity 5. The person to whom the note is payable 6. Day that the principal and interest must be paid

Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the ____________ account:

Accounts Receivable

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

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

To record a customer's check in full payment for a sale that was made the prior month, the company should debit the ____________ account.

Cash

Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal. (Check all that apply.)

Credit to Accounts Receivable Debit to Cash

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

A 90-day note is signed on October 21. The due date of the note is:

January 19

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

Matches expenses with related sales Reports accounts receivable balance at net realizable value

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

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.

account; note

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

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

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

debit to Accounts Receivable. credit to Sales.

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: (Check all that apply.)

debit to Cash for $5,025. credit to Note Receivable for $5,000. credit to Interest Revenue for $25.

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: (Check all that apply.)

debit to Notes Receivable for $6,000. credit to Accounts Receivable for $6,000.

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

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable

A _________________ is an amount due from another party.

receivable

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: (Check all that apply.)

to quickly generate cash. to reduce risk of nonpayment.

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

Finish Co. uses the allowance 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

The ________ ratio is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period.

accounts receivable turnover

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

On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:

Interest Revenue for $200.