Accounting- Chapter 7

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?

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

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:

$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.

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:

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

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?

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

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:

$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.Answer: $6,000

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.

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

Net sales for a company are $250,000. Average accounts receivable are $10,000. The accounts receivable turnover for this company is ________

25

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

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).January 19

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

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:

Accounts Receivable for $3,025

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

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

Principal

Amount that the signer agrees to pay back, not including interest

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: Multiple choice question.

Bad Debt Expense.

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 Debts Expense

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.

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 Blank 1Blank 1 bad , Correct Unavailable Blank 2Blank 2 debt , Correct Unavailable Blank 3Blank 3 expense , Correct Unavailable account before recording a debit to the Cash account

Blank 1: Bad Blank 2: Debts Blank 3: Expense

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

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 $9,500.

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

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: Select two answers.

Cash. Accounts Receivable.

Interest

Charge from using money loaned from one entity to another

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

Maturity date

Day that the principal and interest must be paid

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.)

Debit to Cash Credit to Accounts Receivable

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 Incorrect answer: True Reason: The allowance method estimates bad debt expense before an uncollectible account receivable has been determined to be uncollectible.

True or false: When the maker of a note pays at maturity, the note is said to be dishonored.

False Incorrect answer: True Reason: When the maker of a note pays at maturity, the note is said to be honored.

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

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

February 28th - February 15th = 13 days13 days + 31 days for March = 44 days60 total days - 44 days = 16April 16.

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 12/31, the appropriate 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 would include a credit to: (Check all that apply.)

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

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.)

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

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.

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.

To compute interest due on a maturity date, you should multiply which of the following factors? (Check all that apply.)

Interest rate Principal Time expressed in fraction of year

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

Maker

One who signed the note and promised to pay at maturity

A company sells merchandise to a customer on credit. The journal entry to record this transaction would include a debit entry to the Accounts ________ account.

Receivable

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

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

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: (Check all that apply.)

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

Payee

The person to whom the note is payable

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 Incorrect Answer: False Reason: The two methods companies can use to convert receivables to cash before they are due includes selling them and using them as security for a loan, called pledging.

True or false: A note is honored when it is paid in full.

True Incorrect answer: False Reason: A note is honored when it is paid in full.

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

Promissory note

Written promise to pay a specified amount of money

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

accounts notes

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

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, 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. Multiple choice question.

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. Listen to the complete question

allowance

Bad debts are:

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

________ (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 debts

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 _____________ to the sales account.

credit

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.)

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

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.

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

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

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

credit to Sales. debit to Accounts Receivable.

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.

At year-end, Yates Company estimates that $1,500 of its accounts receivable balance is uncollectible. Yates uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a:

debit to Bad Debts Expense and credit to Allowance for Doubtful Accounts

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: (Check all that apply.) Multiple select question.

debit to Cash. credit to Bad Debts Expense.

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:

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

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

When a note's maker is unable or refuses to pay at maturity, the note is considered ________

dishonored

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 or matching recognition

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

Companies sometimes convert receivables to cash before they are due. When a company sells its receivables, it is called ________ (pledging/factoring). When a company uses receivables as collateral for a bank loan, it is called ________ (pledging/factoring).

factoring pledging

Avi Co. raises cash by borrowing $10,000 and pledging $12,000 accounts receivables as security for the loan. To comply with the full disclosure principle, Avi will record a journal entry in the amount of the $10,000 note payable, and also record a (debit/credit/footnote) ________ to the financial statements, indicating that $12,000 of accounts receivables have been pledged.

footnote

The principal and interest of a note are due on its maturity date. The maker of the note usually (makes/honors/dishonors) ________ the note and pays it in full.

honors

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

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

The (maker/signer)________ 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 ________ constraint permits the use of the direct write-off method when bad debts expenses are very small in relation to a company's other financial statement items, such as sales and net income.

materiality

The __________ constraint permits the use of the direct write-off method when bad debts expenses are very small in relation to a company's other financial statement items, such as sales and net income.

materiality

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

When a company's receivables are used as security for a loan, the company is said to have _____ its receivables.

pledged

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

A _________________ is an amount due from another party.

receivable

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. Multiple choice question.

reinstate, receipt

Companies allow customers to pay for products using third-party credit cards because: (Check all that apply.)

the seller does not have to evaluate customer credit. cash is received from the credit card company faster than from a credit customer. the seller avoids the risk of customer non-payment. a variety of payment options typically increase sales volume.

Companies allow customers to pay for products using third-party credit cards because: (Check all that apply.)

the seller does not have to evaluate customer credit. the seller avoids the risk of customer non-payment. cash is received from the credit card company faster than from a credit customer. a variety of payment options typically increase sales volume.

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

to reduce risk of nonpayment. to quickly generate cash.

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

total uncollectible accounts