ACCTG 211 Chapter 7

Leo Co. uses the allowance method to account for bad debts. At the end of 2010, 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

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1000 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:

- Debit to Accounts Receivable- Ali for $1025 - Credit to Interest revenue for $25 - credit to notes receivable for $1000

On September 1, Horn Co. Accepted a 60-day, 5% note in the amount of $3000 from a customer. ON the due date of the note, the customer dishonors the note and fails to pay. The journal entry that Horn would make on the due date would included a debit to:

Accounts receivable for $3025

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 debit to:

Interest Receivable for $20.

On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:

Interest Revenue for $200.

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.

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

True or False: Two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

True

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 account. Eli's journal entry to record this transaction on November 1, would include a:

a debit to Notes Receivable for $6,000 and a credit to Accounts 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 and fails to pay. The journal entry that Ian would record on the due date would include a:

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

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:

to quickly generate cash. to reduce risk of nonpayment.

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

On March 14, Zest Co. Accepted a 120-day, 6% note in the amount of $5000 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 $5100 (Interest = $5000 x .06 x (120/360) = $100)

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

April 16