Acc Chpt 5

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable

Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit to

accounts receivable.

Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive

$980.

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

Recording bad debt expense:

increases expenses decreases assets decreases net income

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $318,000 and in Allowance for Uncollectible Accounts of $710 (credit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 5% of accounts receivable. Bad debt expense for the year should be:

$15,190. Rationale: (Credit)318,000 x .05 - 710

At December 31, Gill Co. reported accounts receivable of $237,000 and an allowance for uncollectible accounts of $1,500 (debit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 6% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

$15,720. Rationale: (Debit) 237,000 x .06 + 1500

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

$18,000

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $370,000 and in Allowance for Uncollectible Accounts of $1,280 (debit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 5% of accounts receivable. Bad debt expense for the year should be:

$19,780. (Debit)370,000 x .05 + 1280

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20 Rationale: The 8% is an annual rate and since only 2/12 of a year has been earned, interest revenue is $20 (=$1,500*0.08*(2/12)). Nov and Dec is 2/12 of a year.

On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$40 Rationale: The 6% is an annual rate and since only 4/12 of the year has been earned, interest revenue is $40 (=$2,000 x .06 x (4/12)). Sept, Oct, Nov, Dec is 4/12 of a year.

At December 31, Gill Co. reported accounts receivable of $282,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

$5,040. Rationale: (Credit) 282,000 x .02 - 600

The journal entry to record bad debt expense includes:

-credit to allowance for uncollectible accounts -debit to bad debt expense

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Credit to Accounts Receivable. Debit to Sales Returns.

On October 1, Light Corp. provided services on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. The entry required on Light's books on December 31, would require which of the following entries?

Debit Interest Receivable $2,000; credit Interest Income $2,000.

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable.

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

A company makes a sale on terms 2/10, n/30. What does this mean?

If payment is not made in 10 days, the net amount is due in 30 days. The customer may take a 2% discount off the price if paid within 10 days.

What are the financial statement effects of recording bad debt expense using the allowance method?

Increase expenses Decrease assets

Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. BeginningAccountsReceivable WalCo $1,815, TarMart$6,166, CostGet$629 EndingAccountsReceivable WalCo$2,762, TarMart$ 6,694, CostGet$665 Net Sales WalCo$322,427 TarMart$67,878 CostGet$68,963

Receivables Turnover Ratio = Net Sales/Avg. Accounts Receivable 140.9 10.6 106.6 Average Collection Period = 365/Receivables Turnover Ratio

Glasser Corp. provided $20,000 of services on account. When Glasser collects on the account, a credit is made to

accounts receivable.

Flounder Corp. sold $12,000 of services on account. When Flounder collects on the account, the transaction will include a debit to

cash.

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate

credit policies are too lenient.

ABC Corp. received a 3-month, 8%, $1,500 note receivable on November 1. The adjustment for interest earned by December 31 will include a:

credit to Interest Revenue of $20 Rationale: $1,500 x 0.08 x (2/12) = $20; the time is 2/12 of the annual rate of 8%, not 2/3 of the 8% (12-month rate).

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books for interest on April 1 when the note is due requires (Select those that are correct.)

credit to interest receivable, $2,000. debit to cash $4,000 credit to interest revenue, $2,000

On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry will include a

credit to interest revenue, $400. Rationale: The 12% is an annual rate and since only 1/12 of a year has been earned (year 2), interest revenue is $400 (=$40,000 x 0.12 x (1/12))

A(n) ________ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.

debit

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

Albert Corp. received a 2-month, 8%, $1,500 note receivable on December 1. The adjustment for interest earned by December 31 will include a:

debit to Interest Receivable of $10 Rationale: Interest is stated at an ANNUAL rate. $1,500 x 0.08 x (1/12)=$10. Only 1/12 of the 8% annual rate has been earned since December 1.

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too low.

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year

future; current

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income Rationale: Bad debt expense has already reduced net income.

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

not affect

Glasser Corp. provided $20,000 of services on account. The account that should be credited is

service revenue.

A high ratio of allowance for uncollectible accounts to total accounts receivable can indicate:(ALL THAT APPLY) the company's customers are high-risk the company should extend additional credit stringent credit policies the company extends too much credit

the company's customers are high-risk the company extends too much credit

A(n)_______ ________ is the legal right to receive cash from a credit sale and represents an asset of the company.

trade recievable

The allowance method estimates

uncollectible accounts.