Chapter 7 Accounting for receivables McGrawHill textbook questions + readings

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

Amounts due from customers for credit sales

Accounts receivable

Principal

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

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

April 16

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.

Interest

Charge from using money loaned from one entity to another

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. True or false

False

Payee

The person to whom the note is payable

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

True

Promissory note

Written promise to pay a specified amount of money

The ______ 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

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

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 Able's uncollectible balance will include a (debit/credit) to the Allowance for Doubtful Accounts.

debit

A ______ is an amount due from another party.

receivable

Explain what a control account is by completing the following sentence. A control account appears in the general ledger and is supported by information in a separate _____ ledger

subsidiary

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

subsidiary

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 does not want to deal with collecting receivables. to satisfy customer's needs. to quickly increase profit. the company needs cash.

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

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

total uncollectible accounts

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:

4400

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:

5000

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:

7500

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.

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 _____ account

Accounts Receivable

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:

Accounts Receivable - AZC for $5,100

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to: Cash for $5,000 Notes Receivable for $5,100 Accounts Receivable - AZC for $5,100 Accounts Receivable - AZC for $5,000

Accounts Receivable - AZC for $5,100 Reason: Interest = $5,000 x .06 x (120/360) = $100.

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

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: Reason: Cash will be debited for $10,100. $10,000 x .06 x (60/360)=$100. $10,000+$100=$10,100.

Cash in the amount of $10,100

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.) No journal entry is made under the allowance method until specific accounts are determined to be uncollectible Credit to Allowance for Doubtful Accounts Debit to Bad Debts Expense for $1,000 Debit to Allowance for Doubtful Accounts

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

Maturity date

Day that the principal and interest must be paid

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 debitto:

Interest Receivable for $20.

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. Cash for $2,030. Interest Revenue for $30. Interest Receivable for $20. Interest Revenue for $20. Notes Receivable for $2,000

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

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. Interest Receivable for $75. Interest Revenue for $75. Interest Receivable for $37.50.

Interest Revenue for $37.50. Reason: The adjusting entry for Lion Company is to credit interest revenue for $37.50 [$15,000 x .06 x (15/360)]. Interest receivable would be debited.

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

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

Notes receivable

Maker

One who signed the note and promised to pay at maturity

Amount due from another party

Receivable

The ________ is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period.

accounts receivable turnover

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

aging

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

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

The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce. True or false

false

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.) Cash for $1,010. Interest Revenue for $5. Notes Receivable for $1,000. Interest Receivable for $5. Interest Revenue for $10.

interest revenue for $5-interest receivable for $5-notes receivable for $1,000

An accounts receivable ledger: (Check all that apply.) is necessary only when a company does not keep a general ledger. is a supplementary record to maintain an account for each customer. records journal entries that affect accounts receivable

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

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

jan 19

The (maker/payee) of the note is the one that signed the note and promised to pay at maturity. The (maker/payee) of the note is the person to whom the note is payable.

maker payee

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

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.

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.) debit to Accounts Receivable - ZRT. credit to Accounts Receivable - ZRT. credit to Allowance for Doubtful Accounts. debit to Bad Debts Expense. debit to Allowance for Doubtful Accounts. credit to Bad Debts Expense.

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

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.) debit to Accounts Receivable for $6,060. credit to Accounts Receivable for $6,000. credit to Notes Receivable for $6,060. debit to Notes Receivable for $6,000.

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

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

credit to Notes Receivable for $1,000. credit to Interest Revenue for $25 Reason: $1,000 x (180/360) x .05 = $25 interest. debit to Accounts Receivable - Ali for $1,025. Reason: $1,000 x (180/360) x .05 = $25 interest.

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

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

accounts receivable ledger

A. Stine Co. previously wrote off a $200 bad debt from Thorn Co. using the direct write-off method. On October 1, Stine unexpectedly receives a check in the amount of $200 from Thorn Co. The entry to record this receipt of $200 will include a: (Check all that apply.) credit to Bad Debts Expense. credit to Cash debit to Cash debit to Bad Debts Expense.

credit to Bad Debts Expense. debit to Cash.

On January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a: (Check all that apply.) debit to Cash for $5,025 credit to Note Receivable for $5,000 debit to Interest Revenue for $25 credit to Interest Revenue for $25 credit to Note Receivable for $5,025

credit to Interest Revenue for $25. debit to Cash for $5,025. credit to Note Receivable for $5,000.