Chapter 7

A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

$2,800

A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

$4,400

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due on the note? (Use 360 days a year.)

$7,930

Honoring a note receivable indicates that the maker has:

Paid in full.

A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period?

3

A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable of $90,000. Its accounts receivable turnover equals:

6.1

At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Bad Debts Expense 15,375 -- Allowance for Doubtful Accounts 15,375

A company pledges their receivables so they may

Borrow money.

Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?

Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense, reports the following selected amounts: Accounts receivable $435,000 Debit Allowance for Doubtful Accounts 1,250 Debit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable $435,000 Debit Allowance for Doubtful Accounts 1,250 Debit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.

MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be:

Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

Debit Cash $4,060; Credit Interest Revenue $60; Credit Notes Receivable $4,000

Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the collection on the maturity date is:

Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104

On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer to settle his account. What entry should be made on the November 1 to record the acceptance of the note?

Debit Note Receivable $10,000; credit Accounts Receivable $10,000.

The accounts receivable turnover is calculated by:

Dividing net sales by average accounts receivable.

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

Factor.

Which of the following is not true about the Allowance for Doubtful Accounts?

It is a liability account.

On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

No effect on net income; no effect on total assets.

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

October 7

All of the following statements regarding the allowance method are true except: - The Allowance for Doubtful Accounts is subtracted from Accounts -Receivable to report receivables at realizable value. - The write-off an uncollectible account does not impact the income statement. - The Allowance for Doubtful Accounts is a contra asset account. - The allowance method does not record bad debt expense until a customer's account receivable is determined to be uncollectible. - The allowance method estimates bad debts expense at the end of each accounting period and records it with an adjusting entry.

The allowance method does not record bad debt expense until a customer's account receivable is determined to be uncollectible.

The expense recognition principle, as applied to bad debts, requires: - The use of the direct write-off method for bad debts. - That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions. - The use of the allowance method of accounting for bad debts. - That bad debts be disclosed in the financial statements. - That bad debts not be written off.

The use of the allowance method of accounting for bad debts.

Factoring receivables is beneficial to a seller for all of the following reasons except: - Seller avoids the cost of billing and accounting for receivables. - Allows firms to receive cash earlier. - There are no fees for factoring. - May pass the risk of bad debts to the factor. - Passes ownership of the receivables to the factor.

There are no fees for factoring.

Separate accounts receivable information for each customer is important because it reveals all of the following except: - How much each customer still owes. - How much each customer has paid. - The basis for sending bills to customers. - How much each customer has purchased on credit. - When the customer intends to pay outstanding balances.

When the customer intends to pay outstanding balances.