Accounting Chapter 8

What is the maturity value of a 90-day, 12% note for $10,000? Answer $8,800 $10,000 $10,300 $11,200

$10,300 Rationale Maturity value is the amount that is due at the maturity or due date. The maturity value of $10,300 (answer C) is determined as follows: 10000 x .12 x 90/360

At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of uncollectible accounts determined by aging the receivables is $8,500, the amount of bad debt expense is: Answer $2,500 $6,000 $8,500 $11,000

$6,000 The estimate is $8500 and you would subtract that against the current allowance for doubtful accounts $2500

At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable is: Answer $7,000 $93,000 $100,000 $107,000

$93,000 The amount expected to be realized from accounts receivable is the balance of Accounts Receivable, $100,000, less the balance of Allowance for Doubtful Accounts, $7,000, or $93,000 (answer B).

two methods to write off Uncollectible

1. Direct write off method (Small companies) 2. Allowance Method (Big Companies)

What is a receivable?

A money claim against another company Example: Accounts receivables, Notes Receivable term-16 These make up a huge portion of ASSETS

Under the direct write-off method, the entry to write off an account debits _________ and credits _________________ Neither an allowance account nor an adjusting entry is needed at the end of the period.

Bad Debt Expenseterm-20 Accounts Receivable.

When a note is paid at maturity, _________ is debited, ___________ is credited, and __________ is credited. If the maker of a note fails to pay, the dishonored note is journalized by debiting an account receivable for the amount due from the maker of the note.

Cash Notes Receivable Interest Revenue

Allowance Method Entry

Debit Bad debt expense Credit Allowance for doubtful accounts If known account Debit Allowance for doubtful accounts Credit Accounts Receivable for ____________

Allowance method Obj. 4 Journalize the following transactions, using the allowance method of accounting for uncollectible receivables: June 2. Received $1,200 from Melissa Crone and wrote off the remainder owed of $4,000 as uncollectible. Oct. 9. Reinstated the account of Melissa Crone and received $4,000 cash in full payment.

June 2 Cash 1,200 Allowance for Doubtful Accounts 4,000 Accounts Receivable—Melissa Crone Oct. 9 Accounts Receivable—Melissa Crone 4,000 Allowance for Doubtful Accounts 4,000 9 Cash 4,000 Accounts Receivable—Melissa Crone 4,000

Direct write-off method Obj. 3 Journalize the following transactions, using the direct write-off method of accounting for uncollectible receivables: June 2. Received $1,200 from Melissa Crone and wrote off the remainder owed of $4,000 as uncollectible. Oct. 9. Reinstated the account of Melissa Crone and received $4,000 cash in full payment.

June 2 Cash 1,200 Bad Debt Expense 4,000 Accounts Receivable—Melissa Crone 5,200 Oct 9 Cash 4000 AR 4000 AR 4000 Bad Debt Expense 4000

A note received to settle an account receivable is journalized as a debit to _____________ and a credit to ______________

Notes Receivable Accounts Receivable.

Direct Write Off Reinstate

Only used when account is determined worthless and needs to be written off Two Part Entry Debit AR Credit Bad debt Expense Debit Cash Credit AR

When a company can't collect payments its known as _________________

Uncollectible

f Accounts Receivable for Sally Company is equal to $56,850 and Allowance for Doubtful Accounts is $2,375 at December 31, what is the amount of net receivables shown on Sally's balance sheet of the same date? a. $54,475 b. $56,850 c. $59,225 d. Cannot be determined from the information given.

a. $54,475

When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method? a. The result is based on either (1) a percentage of sales or (2) an analysis of receivables. b. No allowance account is used. c. The expense is recognized when the account is written off rather than in the period of sale. d. Primary users are small companies and those with a small amount of receivables.

a. The result is based on either (1) a percentage of sales or (2) an analysis of receivables.

Flora Co. uses the allowance method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be to a. debit Allowance for Doubtful Accounts and credit Accounts Receivable. b. debit Accounts Receivable and credit Bad Debt Expense. c. debit Sales Returns and Allowances and credit Accounts Receivable. d. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.

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

Extra Co. uses the direct write-off method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would include a a. debit to Bad Debt Expense and a credit to Accounts Receivable. b. debit to Accounts Receivable and a credit to Bad Debt Expense. c. debit to Sales Returns and Allowances and a credit to Accounts Receivable. d. debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

a. debit to Bad Debt Expense and a credit to Accounts Receivable.

The party making the promise to pay the promissory note is the a. maker. b. lender. c. payee. d. None of these choices are correct.

a. maker.

Under the allowance method, when a specific account is written off, a. total assets will be unchanged. b. total assets will decrease. c. net income will decrease. d. total assets will increase.

a. total assets will be unchanged.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $16,000. Which of the following entries records the proper provision for doubtful accounts? a. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500 b. Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500 c. Debit Bad Debt Expense, $16,500; credit Allowance for Doubtful Accounts, $16,500 d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500

b. Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the allowance method would include a. a debit to Allowance for Doubtful Accounts of $3,650. b. a credit to Allowance for Doubtful Accounts of $3,650. c. a debit to Bad Debt Expense of $3,650. d. a credit to Cash of $3,650

b. a credit to Allowance for Doubtful Accounts of $3,650.

The operating expense recorded from uncollectible receivables is called ____________

bad debt expense.

The party to whom the promissory note is payable is the a. maker. b. issuer. c. payee. d. None of these choices are correct.

c. payee.

A primary weakness of the direct write-off method is that a. it understates accounts receivable on the balance sheet. b. it is based on estimates. c. the expense of a bad debt is not matched to the period that generated the uncollectible sale amount. d. it is too difficult for many companies to use.

c. the expense of a bad debt is not matched to the period that generated the uncollectible sale amount.

Allowance for Doubtful Accounts will have a. an unadjusted debit balance at the end of the period if the write-offs during the period were less than the beginning balance. b. an unadjusted credit balance at the end of the period if the write-offs during the period were more than the beginning balance. c. an unadjusted debit balance at the end of the period if the write-offs during the period were equal to the beginning balance. d. an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance.

d. an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance.

Establishing an allowance for doubtful accounts under the allowance method is necessary because a. a liability results when a credit sale is made. b. collection agencies use this account to accumulate attempts to collect worthless balances. c. uncollectible accounts that are written off must be accumulated in a separate account. d. estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected.

d. estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected.

Allowance for Doubtful Accounts is a. subtracted from Cash. b. subtracted from Notes Receivable. c. added to Accounts Receivable. d. subtracted from Accounts Receivable.

d. subtracted from Accounts Receivable.

In the current assets section of the balance sheet, receivables are usually listed in order a. alphabetically. b. of due date. c. of size. d. that they can be turned into cash.

d. that they can be turned into cash.

Other receivables do not include a. interest receivable. b. officers and employees receivable. c. taxes receivable. d. trade receivables

d. trade receivables

Under the allowance method, an adjusting entry is made for ________________ When an account is determined to be uncollectible, it is written off against the _____________ The allowance account is a contra asset account that normally has a credit balance after the adjusting entry has been posted. The estimate of uncollectibles may be based on a percent of sales or an analysis of receivables.

uncollectible accounts. allowance account