Accounting CH 8 LS

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

Rank companies A-C based on how favorable their receivables turnover ration is (from most favorable to least favorable).

Company B: 5.6 times Company A: 3.4 times Company C: 2.4

What is the effect of a write-off of a specific customer's account on net receivables on the balance sheet.

The net receivable balance is the same.

An object of the expense recognition (matching) principle is to have bad debt expense debited in:

The same period the related credit sales are recorded

Removing an uncollectible account and its corresponding allowance from the accounting records is called

a write-off

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

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

contra, credit

The allowance method is a method of accounting that ________ net accounts receivable for estimated bad debts.

decreases net accounts receivable

The____write-off method is not allowed under GAAP

direct

A company's Bad Debt Expense reports the :

estimated amount of this period's credit sales that customers will fail to pay

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectable accounts, then the _____

estimated amount of uncollectibles was greater than the amounts actually written off

The write-off of a specific credit customer's account____.

has no effect on the income statement or the net receivable balance on the balance sheet

The receivables turnover ratio is computed as______

net sales revenue divided by average net accounts receivable

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

1. debit to notes receivable of $1,000 2. Credit to Cash of $1,000

Sales on account will cause an increase in:

1. Accounts Receivable on the Balance sheet 2. Sales Revenue on the income statement

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

1. Allowance for Doubtful Accounts of $8,000 on the balance sheet 2. Bad Debt Expense of $7,250 on the income statement

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period not Retained Earnings?

1. Sales Revenue 2.Depreciation Expense 3. Bad Debt Expense

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.

1. may be dissatisfied with the product or service 2. Are more likely to default

In which situations does a company issue a note receivable?

1.The company lends money to employees or businesses. 2. The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest.

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

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. After the bad debt adjusting entry is recorded, Bad Debt Expense on the income statement will be ____ the Allowance for Doubtful Accounts on the balance Sheet.

100 less than

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that 1,000 of receivables will be uncollectible. Delectable's financial statements will show ____.

1. Allowance for Doubtful Accounts of 1,000 2. Bad Debt Expense of 950

Which of the following are advantages of using national credit cards?

1. Avoid lengthy cash collection periods 2. Reduction of bad debts expense

Using the aging approach management estimates that 1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted Credit balance. The adjusting entry to record estimated bad debts includes a _____.

1. Credit to allowance for 1,000 2. debit to Bad debt expense of $900 3. credit to Allowance for doubtful accounts of $900 4. debit to bad debt expense of 1,000

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

1. Customers may get annoyed and take their business elsewhere. 2. Hounding customers to pay if their receivables are past due is time-consuming and costly

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

1. Debit Notes Receivable and credit Cash. 2. Debit Interest Receivable and credit Interest Revenue. 3. Debit Cash and credit Interest Receivable (or interest revenue if not previously recorded) 4. Debit Cash and credit Notes Receivable, Interest Revenue and interest Receivable

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

1. Debit to allowance for Doubtful Accounts 2. Credit to Accounts Receivable

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

1. Delayed receipts of cash 2. Increase bad debt costs 3. Increase wage costs

Match each account with the proper description:

1. Notes Receivable - the principle amount 2. Interest Receivable - the amount of interest earned but not yet collected 3. interest revenue - the amount of interest earned

The days to collect ratio provides what kind of information?

1. That a higher number of days means a longer (worse) time for collection. 2. the average number of days from sale on account to collection

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

1. credit to Sales Revenue of $5.6 million 2. Debit to Accounts receivable of $5.6 million

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 _____.

1. debit to Bad Debt of $1,000 2. credit to Allowance for Doubtful Accounts of $1,000

Match the following methods for estimating bad debts with their description.

1. percentage of credit sales: estimates bad debt expense based on the historical percentage of sales that lead to bad debt losses 2. aging of accounts receivable: estimates the allowance for doubtful accounts based on the age of each account receivable

The adjusting entry to record the allowance for doubtful accounts causes total____.

1. stockholders' equity to decrease .2. assets to decrease

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

1. the amounts are estimates and no one knows which particular customers will not pay 2. the company would lose track of which customers still owe money

If the Allowance for Doubtful Accounts was debited, what account was credited?

Accounts Receivable

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

Accounts Receivable

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

Accounts, Notes

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

Expense recognition (matching) principle

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.

ABC Corp. received a 3-month, at 8% per year, 1,500 note receivable on November 1. The adjusting entry on December 31 will include a _____.

credit to interest revenue of $20

Using its aging of accounts receivable, Age Old, Inc. estimates that 90,000 of its 4,000,000 of accounts receivable will be uncollectable. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a debit balance of 1,000. After the adjustment, Bad Debt Expense on the income statement will be _____ the Allowance for Doubtful Accounts on the balance sheet.

greater than

When the allowance method is used, the entry to record the write-off of an uncollectable account____.

has no effect on the net income

What is occurring if a company is debiting Cash and Crediting Notes Receivable?

it is collecting the principal on amounts lent earlier

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 stockholder's equity

Collection of a previously written-off account is called a _________.

recovery

For billing and collection purposes, companies keep a separate accounts receivable account for each customer called a _______account.

subsidiary

Since accounting numbers, such as the allowance for doubtful accounts balance , are based on estimates, financial statements are _____

susceptible to management manipulation