AC 210 Ch. 8 Leanrsmart

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $9,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ____.

$1,000 credit

based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding. 5% to the $100,000 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the allowance for doubtful accounts will equal _.

$1,700

In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals _____.

$760

A company lends $1,000 each to two employees at a rate of 6% on December 1. One employee is to repay the note in 3 months and the other in 6 months. At December 31, how much interest will the company accrue? $______.

10

For a note receivable that was created on November 1, 2018 and is due for repayment on October 31, 2019, what is the time fraction needed to compute interest revenue for the year ended December 31, 2018?

2/12

Net Sales revenue is $730,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the days to collect.

30 days

A subsidiary account _____.

A subcomponent account record providing individual balance details; e.g., the record for one customer out of a group of customers comprising all accounts receivable

If the allowance for doubtful accounts was debited, what account was credited?

Accounts Receivable

A sale on account is recorded with a debit to ______ and a credit to _____.

Accounts Receivable Sales Revenue

Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in order of occurrence from top to bottom.

Accounts Receivable are debited in the period the revenue is recognized Bad Debt Expense is estimated and recorded with an adjusting entry Specific customer balances are written off

_____ Receivable arise from making sales to customers on account and are non-interest bearing. ____ Receivable are formal written contracts that are interest bearing.

Accounts and Notes

The adjusting entry to record the estimated amount of bad credit sales is a debit to Bad Debt Expense and a credit to _____.

Allowance for Doubtful Accounts

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ____.

Allowance for Doubtful Accounts of $2,050 credit balance Bad Debt Expense of $2,000

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 ____.

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

The allowance method requires that ____.

Allowance for Doubtful Accounts to nettled against Accounts Receivable Bad Debt Expense be recorded in the same period as the related credit sales

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers _____ If the days to collect is high.

Are more likely to default May be dissatisfied with the product or service

Using the allowance method, Bad Debt Expense is recorded _____.

As an estimate in the period of the related credit sales

The adjusting entry to record the estimated amount of bad credit sales is a debit to _______ and a credit to Allowance for Doubtful Accounts.

Bad Debt Expense

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

Bad Debt Expense Depreciation Expense Sales Revenue

What are the potential drawbacks of speeding up collections of receivables?

Customers may get annoyed and take their business elsewhere. Hounding customers to pay if their receivables are past due is time-consuming and costly

The issuance of a note The adjusting entry to record interest owed The receipt of an interest payment The receipt of the principal payment

Debit notes Receivable and credit cash Debit interest receivable and credit interest revenue Debit cash and credit interest receivable Debit cash and credit notes receivable

Place the events in proper sequence putting the first step on top for a 2-year note established in November that pays interest annually.

Debit notes receivable and credit cash Debit interest receivable and credit interest revenue Debit cash and credit interest receivable Debit cash and credit notes receivable, interest revenue and interest receivable

Percentage of credit sales Aging of accounts receivable

Estimates had debt expense based on the historical percentage of sales that lead to bad debt expense Estimates the allowance for doubtful accounts based on the age of each account receivable

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Expense recognition (matching) principle

The adjusting entry to record Bad Debt Expense includes a credit to Accounts Receivable.

False

Which of the following are disadvantages to extending credit to customers?

Increased wage costs Delayed receipts of cash Increased bad debt costs

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

If a company is debiting interest receivable and crediting interest revenue, what must be the case?

It is the end of the accounting period and it is adjusting entry for interest generated but not yet collected.

What effect does the adjusting entry for interest earned but not yet received have on the accounting equation?

It results in an increase in assets and stockholders' equity

Accepting only cash and cancelling a credit card program that previously allowed customers to purchase merchandise on credit may cause _____.

Sales to decrease bad debt expense to decrease

Percentage of credit sales Aging of accounts receivable Direct write off

Simpler to apply but less accurate uses more detailed data and is more accurate not considered an acceptable method under GAAP

The days to collect ratio provides what kind of information?

That a higher number of days means a longer (worse) time for collection. The average number of days from sale on account to collection

In which situations does a company issue a note receivable?

The company lends money to employees or businesses. The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest.

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is _____.

The company would lose track of which customers still owe money the amounts are estimates and no one knows which particular customers will not pay

What effect does a write-off have on the income statement and the net receivable balance on the balance sheet?

There is no effect on either

The 3 variables needed to calculate interest are the _____.

Time period covered in the interest calculation Annual interest rate Principal

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

Ima Broke is a customer that owes the company for credit sales and has declared bankruptcy. As a result, Ima Broke's subsidiary account receivable will be eliminated when ____.

a write off is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable

A(n) _____ of accounts receivables method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the Allowance for Doubtful Accounts, the older receivables are assigned a higher percent than newer ones.

aging

Accounts Receivable represent _____.

amounts owed to a business by its customers

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.

The revenue recognition principle requires an adjusting entry to accrue interest earned and includes a debit to Interest Receivable and a credit to Interest Revenue. What effect does this adjusting entry have on the accounting equation?

assets and stockholders' equity increase

Allowance for Doubtful Accounts is a(n) _____ - asset account and has a normal ____ balance.

contra and credit

The entry to record the write-off of a specific customer's account requires a ____.

credit to Accounts Receivable Debit to Allowance for Doubtful accounts

The correct journal entry for the collection of a note receivable includes a _____.

credit to Notes Receivable debit to Cash

The journal entry to record $5.6 million in sales on account includes a ______.

credit to Sales Revenue of $5.6 million Debit to Accounts receivable of $5.6 million

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method, then it must mean that the ____.

debit to Bad Debt Expense will be $1,000 more than the desired ending balance in the Allowance for Doubtful Accounts

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a _____.

debit to Bad Debt of $1,000 credit to Allowance for Doubtful Accounts of $1,000

Using the aging approach management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a _____.

debit to Bad debt expense of $1100 credit to Allowance for doubtful accounts of $1100

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a ______.

debit to notes receivable of $1,000 Credit to Cash of $1,000

On March 1, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Cents' entry to record the loan of $1,000 to its employee includes a ____.

debit to notes receivables of $1,000 credit to cash of $1,000

The ____ write-off method is not allowed under GAAP.

direct

The Allowance for Doubtful Accounts T-account will have the ____ on the credit side.

estimated bad debts from the adjusting entry

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

exceed

The accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called the _____.

expense recognition (matching) principle

When the allowance method is used, the entry to record the write-off of an uncollectible account ___.

has no effect on net income

The entry to record the write-off of a specific customer's account ____ when using the allowance method.

has no effect on total assets, liabilities or stockholders' equity

Bad Debt Expense ___.

is an estimate is a cost of extending credit to customers

The receivables turnover ratio gives information on how ____.

many times the company sells and collects amounts on account per year

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

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

Collection of a previously written-off account is called a(n) ____.

recovery

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidary accounts are not directly reduced. The reason is ____.

the company would lose track of which customers still owe money the amounts are estimates and no one knows which particular customers will not pay

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) _____.

write-off of a specific customer's account