accounting exam 4 Chapter 8 smartbook

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $11,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.

$1,000 debit

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts, then it must mean that ______.

$1,000 more accounts receivables were written off than were estimated back when the prior period's adjusting entry for bad debts was recorded

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

What information is provided by the receivables turnover ratio?

-That a higher ratio means faster (better) turnover -The number of times the average receivables balance is collected during the period

Sales on account ______.

-increase assets and stockholders' equity -increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement

The 2 steps required using the allowance method, are to ______.

-later write-off specific customer balances when they are known to be uncollectible -first make an end-of-period adjustment to record the estimated bad debts

The days to collect ratio is computed as ______

365 divided by the Receivable Turnover Ratio

The direct write-off method does not require the ______ account.

Allowance for Doubtful Accounts

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______. (Select all that apply.)

Allowance for Doubtful Accounts of $1,000 Bad Debt Expense of $950

Why would a company debit Interest Receivable? A. It received an interest payment for amounts accrued in an earlier accounting period. B. It generated interest on its notes receivable which will be collected in a later accounting period. C. It paid interest for amounts incurred in an earlier accounting period. D. It owes interest on its notes payable which will be paid in a later accounting period.

B. It generated interest on its notes receivable which will be collected in a later accounting period.

Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible. This adjusting entry includes a debit to ______.

Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000

If a company is debiting Interest Receivable and crediting Interest Revenue, what must be the case?

It is the end of the of the accounting period and it is adjusting entry for interest generated but not yet collected.

bad debt expense

Reports the ESTIMATED amount of this period's credit sales that customers will fail to pay.

What is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

The adjusting entry to record interest earned but not yet received

Allowance for Doubtful Accounts must be netted (subtracted) against what account

accounts receivable

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record ______.

an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generated in December

When a company lends money to employees at a rate of 4%, the company will record ______.

an asset called Notes Receivable

By comparing the number of days to collect with the length of the credit policy, companies can determine whether its customers ______.

are paying in accordance with the credit policy

The revenue recognition principle requires an adjusting entry to accrue interest earned and includes a debit to Interest Receivable and a credit to Interest Revenue. What effect does this adjusting entry have on the accounting equation?

assets and stockholders' equity increase

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest ______

channel stuffing

Allowance for Doubtful Accounts is a

contra asset account so has a normal credit balance

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method, then it must mean that the ______.

debit to Bad Debt Expense will be $1,000 more than the desired ending balance in the Allowance for Doubtful Accounts

A high receivables turnover ratio is a sign of a company's ______.

effectiveness in granting and collecting credit GOOD THING

Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a credit balance when the amount of write offs recorded during the period is ______ the amount allowed in the prior accounting period.

less than

Sales made on account are recorded with a debit to Accounts Receivable and credit to Sales Revenue for the price times the quantity. Management knows that some of those accounts will not be collected but is unsure which specific customers it will be. Thus, management estimates the amount and records an adjusting entry. Later, when the specific non-paying customer is identified, it writes off the account. The effect of this process on the accounting equation is to _____.

reduce assets and stockholders' equity when the adjusting entry is recorded

The fees charged by major credit card companies are included in ______.

selling expenses on the income statement

What is the effect on the accounting equation if a company does not write off specific, non-paying customers' accounts receivable?

there is no effect

When accounting for accounts receivable and bad debts, the objectives are to

-report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect. -match the cost of bad debts to the accounting period in which the related credit sales are made

Why would a company debit Interest Receivable?

It generated interest on its notes receivable which will be collected in a later accounting period.

The entry to record the write-off of a specific customer's account ______ when using the allowance method.

has no net effect on total assets, liabilities or stockholders' equity

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

The adjusting entry to record the estimated amount of bad credit sales is a debit to _____________ and a credit ____________

debit Bad Debt Expense credit Allowance for Doubtful Accounts

The entry to record the issuance of a note receivable is ______.

debit Notes Receivable and credit Cash

The direct write-off method is not allowed under GAAP because it violates the ______.

expense recognition (matching) principle

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. Thus, bad debt expense will be ______ in the current period than had the unadjusted balance been a credit balance.

greater, greater

When the allowance method is used, the entry to record the write-off of an uncollectible account ______.

has no effect on net income

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers ______ if the days to collect is high. (Select all that apply.)

may be dissatisfied with the product or service are more likely to default

Allowance for Doubtful Accounts is a ______.

permanent account so its balance carries forward to the next accounting period

is bad debt expense a permanent or temporary account?

temporary account so its balance is closed (zeroed out) at the end of the accounting period