Chapter 7 Smartbook

Review the statements below and choose the one that correctly describes a control account.

A control account appears in the general ledger and is supported by a subsidiary ledger.

Receivable

Amount due from another party

Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal. (Check all that apply.)

Credit to Accounts Receivable Debit to Cash

On September 1, Horn Co. accepted a 60-day, 5% note in the amount of $3,000 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 include debit to:

Debit to account receivables

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.

The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

True

Finish Co. uses the allowance method to account for bad debts. At the end of the year, 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:

6,000 600,000 x 0.01% = 6,000

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

A control account appears in the (general/subsidiary) ledger and is supported by information in a separate subsidiary (general/subsidiary) ledger.

General, Subsidiary

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

Matches expenses in the same period with the related sales Reports account receivable balance at the estimated amount to be collected

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Reason: 10,100 Cash will be debited for $10,100. $10,000 x .06 x (60/360)=$100. $10,000+$100=$10,100.

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

aging

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. Multiple choice question.

direct-write off

The allowance method

estimates bad debt expense before an uncollectible account receivable has been determined to be uncollectible.

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

Companies sometimes convert receivables to cash before they are due by selling them or using them as security fqor a loan. The reasons that a company may convert receivables before their due date include: (Check all that apply.)

the company needs cash. the company does not want to deal with collecting receivables

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

The ________ is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period.

accounts receivable turnover

Accounts receivable

Amounts due from customers for credit sales

Notes receivable

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