CH 7 - Accounts and Notes Receivables

Conroy Company uses the allowance method to account for bad debts. During the year, Conroy determined that a balance of $200 from Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20, the due date?

$20

Lani Co. uses the allowance method to account for bad debts. At the end of the year, 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 the year, 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

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

$50

Flash Co. uses the allowance method to account for bad debts. At the end of the year, 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

Thomas Co. sold $1,000 worth of merchandise on a bank credit card with a 3% fee. The entry to record the sales transaction would include a debit to Cash in the amount of $

970

Review the statements below and choose the one that correctly describes a control account.

A control account appears in the general ledger and is supported by a subsidiary ledger.

subsidiary

A control account appears in the general ledger and is supported by information in a separate (general/subsidiary) ledger.

receivable

A______ is an amount due from another party.

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 Blank______ account:

Accounts Receivable

Dea Company sold $1,000 of merchandise to a customer who used Dea Company's credit card. The entry to record this transaction on the date of the sale would include:

Accounts Receivable in the amount of $1,000. Sales in the amount of $1,000.

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

At year-end, Avis Company estimates that $2,000 of its accounts receivable balance is uncollectible. Avis uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a credit to:

Allowance for Doubtful Accounts

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

Receivable

Amount due from another party

Principal

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

Accounts receivable

Amounts due from customers for credit sales

Notes receivable

An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates

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

April 16

If an account receivable balance previously written off using the direct write-off method is later collected in full, the entry to record the payment must include a credit to:

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.

Companies sometimes convert receivables to cash before they are due. When a company sells its receivables, the buyer is called a (pledgor/factor). When a company uses receivables as security for a loan, it is called (pledging/factoring).

Blank 1: factor Blank 2: pledging or pledge

T. Hillcrest Co. sold $500 of merchandise on a bank credit card with a 5% fee. The entry to record this sales transaction would include debit(s) to:

Cash for $475 and to Credit Card Expense for $25

Tricon Co. sells $10,000 of its accounts receivables and is charged a 5% factoring fee. It records this sale with a debit to:

Cash for $9,500.

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Cash in the amount of $10,100

Interest

Charge from using money loaned from one entity to another

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

A company estimates that $1,000 of its accounts receivable is uncollectible at the end of the period and will make the following adjusting entry: (Check all that apply.)

Debit to Bad Debts Expense for $1,000 Credit to Allowance for Doubtful Accounts

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.)

Debit to Cash Credit to Accounts Receivable

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

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20.

On December 1, Christy Co. accepted a 60-day, 6%, $1,000 note due January 30. On December 31, the appropriate year-end adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 (assuming no reversing entry was made) would include a credit to: (Check all that apply.)

Interest Receivable for $5. Interest Revenue for $5. Notes Receivable for $1,000.

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 in the same period with the related sales Reports accounts receivable balance at the estimated amount to be collected

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

Maker

One who signed the note and promised to pay at maturity

To compute interest due on a maturity date, you should multiply which of the following factors?

Principal Interest rate Time expressed in fraction of year

Woodstock Co. had $500 of credit cards sales. The net cash receipts were deposited immediately into Woodstock's bank account less a 2% fee. The entry to record this sales transaction would include a credit to:

Sales in the amount for $500

accounts, notes

The two most common receivables are _______ receivables and _______ receivables.

Accounts Receivable

To record a sale on account, the company should debit:

The (aging/percent) of accounts receivable method uses several percentages, based on long an account is past due, to estimate the allowance.

aging

The Blank______ method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts—mainly, the relationship between accounts receivable and the allowance account.

aging of accounts receivable

The Blank______ 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

The (allowance/direct write-off) method of accounting for bad debts records estimated bad debts expense in the period when the related sales are recorded.

allowance

Bad debts are: (Check all that apply.)

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

(Bad/Invalid)(collectible/debts) are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

bad, debts

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

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

contra

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

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.

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 overdue account. Eli's journal entry to record this transaction on November 1, would include a: (Check all that apply.)

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

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.)

credit to Accounts Receivable. debit to Cash.

On December 31, DVS Company estimates that $2,500 of its accounts receivable balance is uncollectible. DVS uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a: (Check all that apply.)

credit to Allowance for Doubtful Accounts for $2,500. debit to Bad Debts Expense for $2,500

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note. The journal entry that Ian would record on the due date would include a: (Check all that apply.)

debit to Accounts Receivable - Ali for $1,025. credit to Interest Revenue for $25. credit to Notes Receivable for $1,000.

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

When a note's maker does not pay at maturity, the note is considered (honored/dishonored)

dishonored

The direct write-off method records bad debts expense only when a specific account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the Blank______ principle.

expense recognition

direct write-off method

is permitted if results approximate the allowance method.

The ______ constraint is permitted under GAAP when its results approximate those under the allowance method.

materiality

The _______ constraint is permitted under GAAP when the results approximate those using the allowance method.

materiality

The ______ method of estimating allowance for doubtful accounts is based on the idea that a given percent of a company's credit sales for the period are uncollectible.

percentage of sales

When a company's receivables are used as security for a loan, the company is said to have ______ its receivables.

pledged

To compute interest due on a maturity date, use the formula:

principal x interest rate x time expressed in fraction of year

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called:

realizable value

The allowance for doubtful accounts is a contra asset account that equals:

total uncollectible accounts

Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to:

Interest Revenue for $37.50.

Accounts Receivable for $500

Simon Co. sold $500 of merchandise on their own store credit cards. The entry to record this sales transaction on the date of the sale would include a debit to:

The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that

The adjusted balance is equal to the estimate of the uncollectible accounts receivable

Payee

The person to whom the note is payable

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.

When an account previously written off is later collected, two journal entries are required. The first journal entry is to Blank______ the account, and the second journal entry is to record Blank______ of payment.

reinstate, receipt

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.)

the company needs cash. the company does not want to deal with collecting receivables.

The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

true

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.

A note is honored when it is paid in full.

True

On September 1, Horn Co. accepted a 60-day, 5% note in the amount of $3,000 from a customer. On the due date of the note, the customer dishonors the note and fails to pay. The journal entry that Horn would make on the due date would include debit to:

Accounts Receivable for $3,025

Simon Co. sold $500 of merchandise on their own store credit cards. The entry to record this sales transaction on the date of the sale would include a debit to:

Accounts Receivable for $500

accounts receivable ledger

The supplementary record providing information on each customer is called the

Promissory note

Written promise to pay a specified amount of money

Companies allow customers to pay for products using third-party credit cards because:

a variety of payment options typically increase sales volume. the seller does not have to evaluate customer credit. the seller avoids the risk of customer non-payment. cash is received from the credit card company faster than from a credit customer.

Acel Co. uses the allowance method to account for bad debts. In January, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 from CTR. The entries to record the receipt of cash on October 21 would include a debit to: (Check all that apply.)

Cash. Accounts Receivable.

On November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On December 31, the appropriate adjusting entry was made. On January 30 of the next year, the note was honored and paid in full. The entry to record receipt of payment on January 30 would include a credit to: (Check all that apply.)

Interest Revenue for $10. Interest Receivable for $20. Notes Receivable for $2,000

An accounts receivable ledger:

records journal entries that affect accounts receivable. is a supplementary record to maintain an account for each customer.

The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the ______ principle.

expense recognition principle

Avi Co. raises cash by borrowing $10,000 and pledging $12,000 accounts receivables as security for the loan. Avi will record a journal entry in the amount of the $10,000 note payable, and also record a (debit/credit/footnote) to the financial statements, indicating that $12,000 of accounts receivables have been pledged.

footnote