ACG Chapter 7

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (debit balance); 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:

$600 b/c $25,000 x 2% = $500 desired ending balance in the allowance account. Subtract the beginning credit balance to determine the amount of the adjusting entry. $500+ $100 = $600.

Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a debit to:

Allowance for Doubtful Accounts

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16

JD Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into JD Company's bank account less a 3% fee. The entry to record this sales transaction would include the following debit entries. (Check all that apply.)

Cash for $970 Credit Card Expense for $30

Interest

Charge from using money loaned from one entity to another

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

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

January 19

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

Payee

The person to whom the note is payable

promissory note

a written promise to pay a specified amount of money

Bad debts are:

accounts of customers who do not pay. an expense of selling on credit. also called uncollectible accounts.

principle

amount that the signer agrees to pay back, not including interest

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

The allowance for doubtful accounts is a(n) (current/contra/opposite) ___________________ asset account and has a normal credit balance

contra

On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a: (Check all that apply.)

credit to Accounts Receivable - A. Winds. debit to Bad Debts Expense.

Tunes Company determines that a customer balance of $250 from Able Co. is uncollectible. Tunes uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a (debit/credit) to the Allowance for Doubtful Accounts.

debit

On July 10, Yao Co. collects $740 from Ean, Inc. from a prior credit sale. This entry would be recorded by Yao with a: (Check all that apply.)

debit to Cash. credit to Accounts Receivable.

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 ____________ 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 the year, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (debit balance); and sales of $600,000. Based on history, Finish 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:

$500 b/c $30,000 x 1%=$300. When the allowance method is based on accounts receivable, the prior balance in the Allowance for Doubtful Accounts account must be taken into account. Because the Allowance account has a debit balance, the debit balance must be added to the estimated balance to determine the required adjustment. $300 + $200 = $500.

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the _____________ ______________ _____________ account before recording a debit to the Cash account.

Bad Debts Expense

On August 1, Hanes Co. determines that it cannot collect $150 from a customer. Hanes uses the direct write-off method. Hanes will record the write-off of this account by debiting

Bad Debts Expense for $150.

J. Whitlock Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into Whitlock's bank account less a 5% fee. The entry to record this sales transaction would include a debit to:

Credit Card Expense in the amount of $50

Maturity Date

Day that the principal and interest must be paid

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

Maker

One who signed the note and promised to pay at maturity

When a company makes a sale on credit, it records the amount due from the customer in ____________.

accounts receivable

A(n) ____________ is a supplementary record created to maintain a separate account for each customer.

accounts receivable ledger

The two most common receivables are _______________ receivables and ____________________ receivables

accounts, notes

A company sells merchandise to a customer on credit. The journal entry that the company makes to record this sale would include a (debit/credit) _____________ to the sales account.

credit

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

Lina Co. uses the allowance method to account for bad debts. On January 28, Lina determines that a $200 balance from ZRT, Inc. is uncollectible and writes the balance off. The journal entry to write this balance off will include a: (Check all that apply.)

credit to Accounts Receivable - ZRT. debit to Allowance for Doubtful Accounts.

Zino Company determines that a customer balance of $200,from Hollis Co. is uncollectible. Zino uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a

debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

debit to Credit Card Expense for $20. debit to Cash for $480. credit to Sales for $500.