Chapter 7 SB

Conroy Company uses the allowance method to account for bad debts. During 2010, Conroy determined that a balance of $200 for Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20—the due date?

$20; $2,000 x 6% x 60/360

An accounts receivable ledger:

- is a supplementary record to maintain an account for each customer. - records journal entries that affect accounts receivable.

Simon Co. sold $500 of merchandise on their own store credit cards. The entry to record this sales transaction on the date of the sale would include a debit to:

Accounts Receivable for $500

Accounts Receivable

Amounts due from customers for credit sales

allowance method

Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realizable value.

The __________ method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts—mainly, the relationship between accounts receivable and the allowance account.

aging of accounts receivable

The __________ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

The (allowance/direct write-off) _________________ method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

Receivables

amount due from another party

On July 10, Yao Co. collects $740 from Ean, Inc. from a prior credit sale. This entry would be recorded by Yao with a:

credit to Accounts Receivable. debit to Cash.

Zion Company sells merchandise on account to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a:

debit to Accounts Receivable. credit to Sales.

The ____________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense.

direct write-off

The ________ method of estimating allowance for doubtful accounts is based on the idea that a given percent of a company's credit sales for the period are uncollectible.

percentage of sales

To compute interest due on a maturity date, use the formula:

principal x interest rate x time expressed in fraction of year

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called:

realizable value

When an account previously written off is later collected, two journal entries are required. The first journal entry is to _____ the account, and the second journal entry is to record _____ of payment.

reinstate, receipt

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; $25,000 x 2% = $500 desired ending balance in the allowance account. Subtract the beginning credit balance to determine the amount of the adjusting entry. $500 - $100 = $400.

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; Since this is based on a percentage of sales, you should simply multiply $500,000 x .01 = $5,000

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

$50; $5,000 x 4% x 90/360

The advantages of using the allowance method to account for bad debts include which of the following?

- Reports accounts receivable balance at net realizable value - Matches expenses with related sales

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; $40,000 x 2%=800-300=$500

Thomas Co. sold $1,000 worth of merchandise on a bank credit card less a 3% fee. The entry to record the sales transaction would include a debit to Cash in the amount of $.

970

Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the ____________ account:

Accounts Receivable

Acel Co. uses the allowance method to account for bad debts. Early in 2010, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 from CTR. The entries to record the receipt of cash on October 21 would include a debit to:

Accounts Receivable. Cash.

Notes Receivable

An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates.

On August 1, Hanes Co. determines that it cannot collect $150 from a customer. Hanes uses the direct write-off method. Hanes will record the write-off of this account by debiting:

Bad Debts Expense for $150.

T. Hillcrest Co. sold $500 of merchandise on a bank credit card less a 5% fee. The entry to record this sales transaction would include debit(s) to:

Cash for $475 and Credit Card Expense for $25

J. Whitlock Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into Whitlock's bank account less a 5% fee. The entry to record this sales transaction would include a debit to:

Credit Card Expense in the amount of $50

Woodstock Co. had $500 of credit cards sales. The net cash receipts were deposited immediately into Woodstock's bank account less a 2% fee. The entry to record this sales transaction would include a credit to:

Sales in the amount for $500

Dea Company sold $1,000 of merchandise to a customer who used Dea Company's credit card. The entry to record this transaction on the date of the sale would include:

Sales in the amount of $1,000. Accounts Receivable in the amount of $1,000.

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the _______ account.

accounts receivable

If an account receivable balance previously written off using the direct write-off method is later collected in full, the entry to record the payment must include a credit to:

bad debit expense

On August 1, Harris Co. determines that it cannot collect $200 from its customer, L. Dash. Harris Co. uses the direct write-off method, so they will record the write-off of this account by debiting:

bad debit expense

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the ____________ ___________ ___________ account before recording a debit to the Cash account.

bad debts expense

(Bad/Invalid)__________________(collectible/debts)__________________ are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

bad, debits

The allowance for doubtful accounts is a(n) (current/contra/opposite)___________________ asset account and has a normal credit balance.

contra

A company sells merchandise to a customer on credit. The journal entry that the company makes to record this sale would include a (debit/credit)_______________ to the sales account.

credit

P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a: (Check all that apply).

debit to Cash for $480. debit to Credit Card Expense for $20. credit to Sales for $500.

A. Stine Co. previously wrote off a $200 bad debt from Thorn Co. using the direct write-off method. On October 1, Stine unexpectedly receives a check in the amount of $200 from Thorn Co. The entry to record this receipt of $200 will include a:

debit to Cash. credit to Bad Debts Expense.

The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the __________ principle.

expense recognition

True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts.

false

True or false: The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

false; The allowance method estimates bad debts. The direct write-off method waits until an actual accounts receivable balance is uncollectible.

Flash Co. uses the allowance method based on percent of sales method to account for bad debts. At the end of 2010, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$7,500; When allowance method is based on sales, do not take into account previous balance in the allowance account. $1,500,000x.005=$7,500.

Bad debts are:

- also called uncollectible accounts. - an expense of selling on credit. - accounts of customers who do not pay.

Finish Co. uses the allowance method based on the percent of sales method to account for bad debts. At the end of 2010, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish 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:

6000; $600,000 x 1%=$6,000. When the allowance method is based on sales, the prior balance in the Allowance for Doubtful Accounts account is not taken into consideration.

At year-end, Avis Company estimates that $2,000 of its accounts receivable balance is uncollectible. Avis uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a credit to:

Allowance for Doubtful Accounts

Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a debit to:

Allowance for Doubtful Accounts

On December 31, Lee Company estimates that $1,000 of its accounts receivable balance is uncollectible. Lee Company uses the allowance method to account for bad debts. The adjusting entry to record this estimate will include a credit to:

Allowance for Doubtful Accounts

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

April 16; February 28th - February 15th = 13 days + 31 days for March = 44 days; 60 total days - 44 days = 16

A 90-day note is signed on October 21. The due date of the note is:

January 19; 90 days = 31-21=10 days in October + 30 days in November + 31 days in December + 19 days in January. Always start with the number of days in the first month and subtract the date of the note. (October: 31-21 = 10).

A(n) ____________ is a supplementary record created to maintain a separate account for each customer.

accounts receivable ledger

The _____________ of accounts receivable method uses several percentages to estimate the allowance.

aging

P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

credit to Sales for $500. debit to Cash for $480. debit to Credit Card Expense for $20.

Zino Company determines that a customer balance of $200,from Hollis Co. is uncollectible. Zino uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a:

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

The allowance for doubtful accounts is a contra asset account that equals:

total uncollectible accounts