SmartBook Chapter 9

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

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

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana 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:

$500 Reason $40,000 x 2%=800-300=$500

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

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

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

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 August 1, Harris Co. determines that it cannot collect $200 from its customer, L. Dash. Harris Co. uses the direct write-off method, so they will record the write-off of this account by debiting:

Bad Debt Expense.

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

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 $

Blank 1: 970

(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.

Blank 1: Bad Blank 2: 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.

Blank 1: Bad Blank 2: Debts Blank 3: Expense

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

Blank 1: accounts or account Blank 2: notes or note

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.

Blank 1: allowance

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

Blank 1: 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.

Blank 1: 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.

Blank 1: credit

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.

Blank 1: debit

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.

Blank 1: expense or matching Blank 2: recognition

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

Blank 1: materiality

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

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.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: Select two answers.

Cash. Accounts Receivable.

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

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 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

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

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

False

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

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

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: (Check all that apply.)

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

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

accounts receivable ledger

Bad debts are:

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

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.)

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

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.

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. debit to Cash.

Zion Company sells merchandise on credit to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a: (Check all that apply.)

debit to Accounts Receivable. credit to Sales.

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: (Check all that apply).

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

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

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

materiality

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

realizable value

A _________________ is an amount due from another party.

receivable

An accounts receivable ledger: (Check all that apply.)

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

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

reinstate, receipt

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

total uncollectible accounts