acct 2010 chap 8

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $9,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______

$1,000 credit

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $11,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.

$1,000 debit

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts, then it must mean that ______.

$1,000 more accounts receivables were written off than were estimated back when the prior period's adjusting entry for bad debts was recorded

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet

$100 less than

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ______.

Allowance for Doubtful Accounts of $2,050 credit balance Bad Debt Expense of $2,00

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

When a company receives the interest payment for a note that was issued in mid-November of the prior accounting period, the entry includes a debit to ______.

Cash and credit to Interest Receivable and Interest Revenue

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts

Which of the following are disadvantages to extending credit to customers?

Delayed receipts of cash Increased wage costs Increased bad debt costs

What are the potential drawbacks of speeding up collections of receivables?

Hounding customers to pay if their receivables are past due is time-consuming and costly. Customers may get annoyed and take their business elsewhere.

Sales on account will cause an increase in ______.

Sales Revenue on the income statement Accounts Receivable on the balance sheet

The days to collect ratio provides what kind of information?

That a higher number of days means a longer (worse) time for collection The average number of days from sale on account to collection

Why is the Bad Debt Expense on the income statement less than the Allowance for Doubtful Accounts on the balance sheet?

The Allowance for Doubtful Accounts had an unadjusted credit balance.

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

In which situations does a company issue a note receivable?

The company lends money to employees or businesses. The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest.

Which of the following is recorded with a debit to Notes Receivable and a credit to Cash?

The establishment of a note

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.

a write off

A sale on account is recorded with a debit to __________ and a credit to __________

accounts receivable sales revenue

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

additional revenue

Which of the following is contra-asset account?

allowance for doubtful accounts

Using the allowance method, Bad Debt Expense is recorded _____.

as an estimate in the period of the related credit sales

Which of the following are advantages of using national credit cards?

avoid lengthy cash collection periods reduction of bad debts expense

The adjusting entry to record the estimated amount of bad credit sales is a debit to _________ and a credit to allowance for doubtful accounts

bad debt expense

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.

credit decrease

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______.

credit to Allowance for Doubtful Accounts debit to Bad Debt Expense

The entry to record the collection of a previously written-off account needs to be reversed because a customer paid $9,600 after its accounts receivable had been written off. This entry includes a ______.

credit to Allowance for Doubtful Accounts of $9,600

On February 1, Stretchers, Inc., receives $4,000 of interest of which $3,000 was generated and recorded in the prior accounting period ended December 31. The entry to record the collection of interest on February 1 includes a ______.

credit to Interest Receivable of $3,000 credit to Interest Revenue of $1,000 debit to Cash of $4,000

ABC Corp. received a 3-month, at 8% per year, $1,500 note receivable on November 1. The adjusting entry on December 31 will include a ______.

credit to Interest Revenue of $20

The adjusting entry to record the allowance for doubtful accounts includes a ______.

debit to Bad Debt Expense credit to Allowance for Doubtful Accounts

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______.

debit to Bad Debt Expense of $1,000 credit to Allowance for Doubtful Accounts of $1,000

A high receivables turnover ratio is a sign of a company's ______. Multiple choice question.

effectiveness in granting and collecting credit

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

An arrangement where receivables are sold to another company for immediate cash is called ______.

factoring

True or false: It is important for companies to use the services of a collection agency as soon as a customer is late in paying.

false

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. Thus, bad debt expense will be ______ in the current period than had the unadjusted balance been a credit balance.

greater greater

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a debit balance of $1,000. After the adjustment, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

greater than

The receivables turnover ratio is computed as ______.

net sales revenue divided by average net accounts receivable

Collection of a previously written-off account is called a

recovery

A receivable write-off removes a non-paying customer's account receivable and ______.

removes the same amount from Allowance for Doubtful Accounts

Assume ABC Corp. needs to speed up its cash collections from customers and decides to enter a factoring agreement. Assume ABC enters this type of agreement regularly. How should the factoring fee be reported in the income statement?

sales expense

An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______.

the same period the related credit sales are recorded

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) ______.

write-off of a specific customer's account

Notes receivable are used for ______.

lending money to individuals or businesses extending payment periods selling large dollar-value items