Chapter 8

bad debt expense

an expense adjustment account to record uncollectible receivables

credit; debit

Allowances for Doubtful accounts has a (debit/credit) balance and therefore adjusting entries (debit/credit) this account

45

(Assume 1 year = 360 days) Face Value of Note: $1000, Annual Interest Rate: 9%, Time in Terms of One Year: 6 months Interest Rate = $*blank*

120

(Assume 1 year = 360 days) Face Value of Note: $2000, Annual Interest Rate: 6%, Time in Terms of One Year: 1 year Interest Rate = $*blank*

29.20

(Assume 1 year = 360 days) Face Value of Note: $730, Annual Interest Rate: 12%, Time in Terms of One Year: 120 days Interest Rate = $*blank*

segregation of duties

(principle of control activities) To maintain *blank*, the employee authorized to write off accounts should not have daily responsibilities related to cash or receivables

Receivables

*blank* are important because they represent one of a company's most liquid assets

accounts receivable turnover

A measure of the liquidity of accounts receivable

allowance method

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period

honored

A promissory note is *blank* when its maker pays in full at its maturity date.

balance sheet

A write-off affects only (income statement/balance sheet/retained earnings) accounts

credit

Allowance for Doubtful Accounts has a (debit/credit) balance

accounts receivable

Allowance for Doubtful Accounts is a contra asset to *blank*

Cash; 970; debit; Service Charge Expense; 30; Sales Revenue; 1000

Anita Ferreri purchases $1,000 of compact discs for her restaurant from Karen Kerr Music Co., using her Visa First Bank Card. First Bank charges a service fee of 3%. Karen Kerr Music Co. records this transaction as: debit *blank* for $*blank*, (debit/credit) *blank* for $*blank*, and credit *blank* for $*blank*

bad debt expense; 12000; allowance for doubtful accounts; 12000

Assume that Hampson Furniture has credit sales of $1,200,000. Of this amount, $200,000 remains uncollected at December 31. The credit manager estimates that $12,000 of these sales will be uncollectible. The adjusting entry to record the estimated uncollectibles: debit *blank* for $*blank* and credit *blank* for $*blank*

10375

Assume that Wolder Co. lends Higley Co. $10,000, accepting a five-month, 9% interest note. The amount due at maturity is: $*blank*

450

Assume that Wolder Co. lends Higley Co. $15,000, accepting a five-month, 9% interest note. Higley Co pays Wolder Co. back in full in 4 months. The Interest Revenue for Wolder Co. is $*blank*

Cash; 15562.50; credit; Interest Revenue; 562.50; Notes Receivable; 15000

Assume that Wolder Co. lends Higley Co. $15,000, accepting a five-month, 9% interest note. The amount due at maturity is: 15562.50 Wolder's entry AFTER the note is paid back by Higley in cash ON THE MATURITY DATE is: debit *blank* for $*blank*; (debit/credit) *blank* for $*blank*, and credit *blank* for $*blank*

Allowances for Doubtful Accounts; 500; accounts receivable; 500

Assume that the financial vice president of Hampson Furniture authorizes a write-off of the $500 balance owed by R. A. Ware. The entry to record the write-off: debit *blank* for $*blank* and credit *blank* for $*blank*

accounts receivable; 4.50; interest revenue; 4.50

Assume that you owe $300 at the end of the month and JCPenney charges 1.5% per month on the balance due. JCPenney makes an ADJUSTING ENTRY: debit *blank* $*blank* and credit *blank* $*blank*

Accounts Receivable; 300; sales revenue; 300

Assume you use your JCPenney Company credit card to purchase clothing with a sales price of $300 on June 1, 2019. JCPenny will debit *blank* for $*blank* and credit *blank* for $*blank* WE ARE IGNORING COST OF GOODS RN

operating

Bad Debt Expense is reported in the income statement as an (operating/non-operating) expense

Notes Receivable; 1000; accounts receivable; 1000

Calhoun Company has a $1,000, two-month, 12% promissory note. Assuming that Calhoun Company wrote the note to settle an open account, Wilma Company makes the following entry for the receipt of the note: debit *blank* for $*blank*, credit *blank* for $*blank*

higher

Older accounts have a (higher/lower) percentage of receivables because the longer an account is past due, the less likely it is to be collected

receivable; payable

Calhoun Company is the maker of a promissory note to Wilma Company, the payee. To Wilma Company, the promissory note is a note (payable/receivable). To Calhoun Company, it is a note (receivable/payable)

material

Companies must use the allowance method for financial reporting purposes when bad debts are *blank* in amount

balance sheet; asset

Companies report accounts receivable on the (income statement/balance sheet/retained earning sheet) as an (asset/liability/expense/stockholder's equity item)

receivables

Companies should identify in the balance sheet or in the notes to the financial statements each of the major types of *blank*

Bad Debt Expense; Allowance for Doubtful Accounts

Companies using the ALLOWANCE method, debit ESTIMATED uncollectibles to *blank* and credit them to *blank* through an adjusting entry

Interest

Face Value of Note × Annual Interest Rate × Time in Terms of One Year =

amount due at maturity

For each interest-bearing promissory note; face value of the note + interest for the length of time specified on the note =

maker

In a promissory note, the party making the promise to pay is called the *blank*

operating

In the income statement, companies report Bad Debt Expense and Service Charge Expense as *blank* expenses

liquidity

Investors and corporate managers compute financial ratios to evaluate the *blank* of a company's accounts receivable.

trade receivables.

Notes and accounts receivable that result from sales transactions are often called *blank*

cash sales

Retailers generally consider sales from the use of national credit card sales as *blank*

reduce; credited

Sales Returns (increase/reduce) receivables and therefore the receivable account is (debited/credited)

current assets

Short-term receivables appear in the *blank* section of the balance sheet

Bad Debt Expense; Allowance for Doubtful Accounts; 8,500 ($10,000 − $1,500)

Suppose Steffen Company has an ending balance in Accounts Receivable of $200,000 and an unadjusted credit balance in Allowance for Doubtful Accounts of $1,500. It estimates that 5% of its accounts receivable will eventually be uncollectible. It should report a balance in Allowance for Doubtful Accounts of $10,000. To increase the balance in Allowance for Doubtful Accounts from $1,500 to $10,000, the company: debits *blank* and credits *blank* by $*blank*

15,000 (.05 × $300,000)

Suppose Steffen Company has an ending balance in Accounts Receivable of $300,000 and an unadjusted credit balance in Allowance for Doubtful Accounts of $2,500. It estimates that 5% of its accounts receivable will eventually be uncollectible. It should report a balance in Allowance for Doubtful Accounts of $*blank*

higher

The (higher/lower) the accounts receivable turnover, the more liquid the company's receivables

average collection period

The average amount of time that a receivable is outstanding

concentration of credit risk

The threat of nonpayment from a single large customer or class of customers that could adversely affect the financial health of the company.

Bad Debt Expense; 1700; Allowance for Doubtful Accounts; 1700

Total estimated uncollectible accounts for Dart Company is $2,228. The unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of $528, then in the adjusting entry: debit *blank* for $*blank* and credit *blank* for $*blank*

required balance

Total estimated uncollectible accounts for a company represents the existing customer claims expected to become uncollectible in the future. Thus, this amount represents the *blank* in Allowance for Doubtful Accounts at the balance sheet date

false (revenue has not been accrued yet because it's the INITIAL entry and revenue must be accrued before being recognized)

True or false? Calhoun Company is given a $1,000, two-month, 12% promissory note by Wilma Company. When Wilma Company makes their initial journal entry recording the acceptance of the note, interest revenue is credited.

Allowance for Doubtful Accounts; Accounts Receivable

When companies using the ALLOWANCE method write off a SPECIFIC account, they debit ACTUAL uncollectibles to *blank* and credit that amount to *blank*

receivables

amounts (also known as claims) due from individuals and companies that are expected to be collected in cash

percentage of receivables basis

a basis by which management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts in order to estimate the allowance for uncollectible receivables

aging of accounts receivable

a schedule of customer balances classified by the length of time they have been unpaid

Notes receivable

a written promise (as evidenced by a formal instrument) for amounts to be received which normally requires the collection of interest and extends for time periods of 60-90 days or longer

promissory note

a written promise to pay a specified amount of money on demand or at a definite time. May be used (1) when individuals and companies lend or borrow money, (2) when the amount of the transaction and the credit period exceed normal limits, or (3) in settlement of accounts receivable

permanent

allowance for doubtful accounts is (temporary/permanent) account

payee

in a promissory note, the party to whom payment is to be made is called the *blank*

Cash (net) realizable value

net amount the company expects to receive in cash; excludes amounts that the company estimates it will not collect

cash realizable value

the *blank* is the amount expected after allowances for doubtful accounts is deducted from accounts receivable

Accounts receivable

the account for amounts customers owe on account

cash (net) realizable value

the allowance method ensures that companies state receivables on the balance sheet at their *blank*

estimated uncollectible

the allowance method reduces receivables in the balance sheet by the amount of *blank* receivables.

required balance; Allowance for Doubtful Accounts

the amount of bad debt expense that should be recorded in the adjusting entry is the difference between the *blank* and the existing balance in the *blank* account

Other receivables

this include nontrade receivables such as interest receivable, loans to company officers, advances to employees, and income taxes refundable. These do not generally result from the operations of the business

allowance

this method provides better matching of expenses with revenues on the income statement

percentage of receivables basis

this provides an estimate of the cash realizable value of the receivables. It also provides a reasonable matching of expenses to revenue