ACCT 2401 Chap 8

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.

Accounts Receivable has a $2,300 balance and the Allowance for Doubtful Accounts has a $200 credit balance. An $80 account receivable is written off Net receivables (net realizable value) after the write off equals:

$2,100

In its first year of business, ABC Inc had Accounts Receivable of $8,000 and credit sales of $38,000 Management estimates 2% of the total credit sales will be uncollectible. Bad Debt expense equals:

$760

A 2-month interest calculation on a 3-year 12% annual rate $1,000 note receivable has a time variable of :

2/12

for a note receivable that was created on November 1, 2015 and is due for repayment on October 31, 2016 what is the time fraction needed to compute interest revenue for the year ended December 31, 2015?

2/12

Delectable, Inc's unadjusted trial balance includes Accounts Receivable of $10,000 Allowance for doubtful accounts of $50 credit balance and credit sales of $100,000 Based on an aging of its receivable management estimates that $1,000 of receivables will be uncollectible Delectable's financial statements will show:

Bad debt expense of $950 and allowance for doubtful accounts of $1,000

What potential drawbacks of speeding up collection of receivables?

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

True or false: Allowance for Doubtful accounts is used for Accounts receivable but not notes receivable

False

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

In Which situations does a company issue a note receivable?

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

Accounts receivable represent

amounts owed to a business by its customers

The 3 variables needed to calculate interest are the

annual interest rate, time period covered in the interest calculation and principal

By comparing the number of days to collect with the length of the credit policy companies can infer that customers _______if the days to collect is high

are more likely to default and may be dissatisfied with the product or service

The adjusting entry to record the allowance for doubtful accounts caused total:

assets to decrease and stockholders' equity to decrease

The challenge businesses face when estimating the allowance for previously recorded sales is that:

at the time of sale it is not known which particular customer will be a "bad" customer

a scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest:

channel stuffing

Using the aging approach management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a :

credit to allowance for Doubtful accounts of $1,100 and a debit to Bad Debt expense of $1,100

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a:

credit to cash of $1,000 and a debit to Notes receivable of $1,000

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method then it must mean that the:

debit to Bad Debt Expense will be $1,000 more than the desired ending balance in the Allowance for Doubtful Accounts

ABC corp received a 2-month 8% per year $1,500 note receivable

debit to interest receivable of $10

The Allowance for doubtful accounts a contra-asset account is________when specific uncollectible accounts are written off

debited

The direct write-off method is not allowed under GAAP because it violates the:

expense recognition (matching) principle

Given the unadjusted allowance for doubtful accounts has a $50 debit balance the amount of the 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

When the allowance method is used, the entry to record the write off of an uncollectible account:

has no effect on net income

The receivables turnover ratio gives information on:

how many times the company sells and collects amounts on account per year

The receivables turnover ratio is computed as:

net sales divided by average net accounts receivable

The employee who records the entry to write off uncollectible accounts should:

not be the same person who receives collections from customers

Allowance for Doubtful Accounts is a

permanent account so its balance carries forward to the next accounting period

collection of a previously written off account is called

recovery

which of the following are advantage of using national credit cards?

reduction of bad debts expense and avoid lengthy cash collection periods

For billing and collection purposes companies keep separate accounts receivable account for each customer called a

subsidiary account

What effect does the collection of a note receivable, excluding interest have on the accounting equation?

Total assets remain the same

True or False Converting long-outstanding accounts receivable into new notes receivable to reduce bad debt expense is unethical

True

The entry to record the write-off of a specific customer's account requires a:

credit to Accounts Receivable debit to Allowance for Doubtful Accounts

on February 1, 2016 stretchers inc receives $4,000 of interest of which $3,000 was earned and recorded in the prior accounting period ended December 31, 2015 The entry to record the collection of interest on Feb 1 includes a :

debit to cash of $4,000 and a credit to interest receivable of $3,000 and a credit to interest of revenue of $1,000

what effect does the adjusting entry for interest earned but yet not received have on the accounting equation?

it results in an increase in assets and stockholders' equity

percentage of credit sales aging of accounts receivable direct write off

simpler to apply but less accurate uses more detailed data and is more accurate not considered an acceptable method under GAAP

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,

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

When recording the adjusting entry for uncollectible accounts using the allowance method, customer's subsidiary accounts are not directly reduced. The reason is:

the amounts are estimates and no one knows which particular customers will not pay the company would lose track of which customers still owe money