Accounting 211

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

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 - Reason: $400,000 x 1% = 4,000 + 400 debit balance = $4,400

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 - Reason: $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.

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

7500 - Reason: When allowance method is based on sales, do not take into account previous balance in the allowance account. $1,500,000x.005=$7,500.

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 Receivable - Amount due from another party

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 Receivable - Amount due from another party

The two most common receivables are ___ receivables and ___ receivables.

Blank 1: accounts or account Blank 2: notes or note

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.

Blank 1: maker Blank 2: payee

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

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

January 19 Reason: 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).

Match the following terms to the appropriate definitions. Promissory note - Written promise to pay a specified amount of money Principal - Amount that the signer agrees to pay back, not including interest Interest - Charge from using money loaned from one entity to another Maker - One who signed the note and promised to pay at maturity Payee - The person to whom the note is payable Maturity date - Day that the principal and interest must be paid

Match the following terms to the appropriate definitions. Promissory note - Written promise to pay a specified amount of money Principal - Amount that the signer agrees to pay back, not including interest Interest - Charge from using money loaned from one entity to another Maker - One who signed the note and promised to pay at maturity Payee - The person to whom the note is payable Maturity date - Day that the principal and interest must be paid

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

aging

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 records estimated bad debts expense in the period when the related sales are recorded.

allowance

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