Intro to Financial Accounting Chapter 7

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

Lani Co. uses the allowance method to account for bad debts. At the end of the year, their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$4400

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:

$6000

An accounts receivable ledger: (Check all that apply.)

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

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

-credit to Accounts Receivable. -debit to Cash.

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

970

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

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

The two most common receivables are_______receivables and_________receivables.

Accounts & Notes

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

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

Match the definitions to the appropriate terms: Accounts receivable- Notes receivable- Receivable-

Amounts due from customers for credit sales. An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates. Amount due from another partyAmount due from another party.

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 $150

To record a customer's check in full payment for a sale that was made the prior month, the company should debit the ____________ account.

Cash

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

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

The principal and interest of a note are due on its maturity date. If the maker of the note pays the note in full, the maker is said to have (honored/dishonored)___________the note.

Honored

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 November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On December 31, the appropriate adjusting entry was made. On January 30 of the next year, the note was honored and paid in full. The entry to record receipt of payment on January 30 would include a credit to: (Check all that apply.)

Interest Revenue for $10 Notes Receivable for $2,000 Interest Receivable for $20

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

January 19th

On December 1, Christy Co. accepted a 60-day, 6%, $1,000 note due January 30. On December 31, the appropriate year-end adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 (assuming no reversing entry was made) would include a credit to: (Check all that apply.)

Notes Receivable for $1,000. Interest Receivable for $5. Interest Revenue for $5.

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: A note is honored when it is paid in full.

True

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

True

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 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:

When a note is dishonored, the Accounts Receivable account is debited for the amount of the note plus interest. Interest = $5,000 x .06 x (120/360) = $100.Accounts Receivable - AZC for $5,100

The (allowance/direct write-off)______________method of accounting for bad debts records estimated bad debts expense in the period when the related sales are recorded.

allowance

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 debt expense

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

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. The journal entry that Ian would record on the due date would include a: (Check all that apply.)

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

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

Companies sometimes convert receivables to cash before they are due. When a company sells its receivables, the buyer is called a __________(pledgor/factor). When a company uses receivables as security for a loan, it is called ________(pledging/factoring).

factor & pledging

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

Explain what a controlling account is by completing the following sentence. A controlling account appears in the_____________(general/subsidiary) ledger and is supported by information in a separate_____________(general/subsidiary) ledger.

general & subsidiary

The (maker/payee)_________of the note is the one that signed the note and promised to pay at maturity. The (maker/payee)_________of the note is the person to whom the note is payable.

maker & payee

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

realizable value

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

total uncollectible 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

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

Cash for $475 and to Credit Card Expense for $25

Tricon Co. sells $10,000 of its accounts receivables and is charged a 5% factoring fee. It records this sale with a debit to:

Cash for $9500

JD Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into JD Company's bank account less a 3% fee. The entry to record this sales transaction would include the following debit entries. (Check all that apply.)

Cash for $970 Credit Card Expense for $30

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:

Cash in the amount of $10,100

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

Bad debts are:

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

On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a: (Check all that apply.)

debit to Bad Debts Expense. credit to Accounts Receivable - A. Winds.

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

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

accounts receivable ledger

Tunes Company determines that a customer balance of $250 from Able Co. is uncollectible. Tunes uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a (debit/credit)____________to the Allowance for Doubtful Accounts.

debit

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: (Check all that apply.)

debit to Notes Receivable for $6,000. credit to Accounts Receivable for $6,000.

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:

$5000

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

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

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

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

aging