ACCT Test 3

Quill Industries uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $20,000. The unadjusted credit balance in the Allowance for Doubtful Accounts account is $6,400. What is the estimated Bad Debt Expense for the period?

$13,600

Saint John Industries uses the percentage of credit sales method to estimate Bad Debt Expense. The company reported net credit sales of $500,000 during the year. Saint John has experienced bad debt losses of 3% of credit sales in prior periods. At the beginning of the year, Saint John has a credit balance in its Allowance for Doubtful Accounts of $4,000. No write-offs or recoveries were recorded during the year. What amount of Bad Debt Expense should Saint John recognize for the year?

$15,000

Total doubtful accounts at the end of the year are estimated to be $12,500 based on an aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a $3,500 debit before adjustment, what is current year's Bad Debt Expense?

$16,000

Assume the company recorded no write-offs or recoveries during 2019. What was the amount of Bad Debt Expense reported in 2019?

$23,040

The amount of uncollectible accounts at the end of the year is estimated to be $25,000, using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. What is the adjusted balance of the Allowance for Doubtful Accounts at the end of the year?

$25,000

Grandview, Inc. uses the allowance method. At December 31, 2018, the company's balance sheet reports Accounts Receivable, Net in the amount of $27,200. On January 2, 2019, Grandview writes off a $2,400 customer account balance when it becomes clear that the customer will never pay. What is the amount of Accounts Receivable, Net after the write-off?

$27,200

Star Enterprises uses the aging of accounts receivable method. The following information comes from its accounting records: Cash sales $ 400,000 Credit sales 1,600,000 Total sales 2,000,000 Credit balance in the Allowance for Doubtful Accounts 10,000 Estimated uncollectible accounts receivables 38,000

$28,000

Accounts Receivable has a $3,450 balance, and the Allowance for Doubtful Accounts has a $300 credit balance. An $120 account receivable is written-off. Net receivables (net realizable value) after the write-off equals:

$3,150.

Charleston, Inc. has Accounts Receivable of $320,000 and an Allowance for Doubtful Accounts of $16,000. If it writes-off a customer account balance of $1,600, what is the amount of its net accounts receivable?

$304,000

Wrangler Inc. uses the percentage of credit sales method to estimate Bad Debt Expense. At the end of the year, the company's unadjusted trial balance includes the following: Wrangler has experienced bad debt losses of 0.5% of credit sales in prior periods. What is the Bad Debt Expense to be recorded for the year?

$4,500

Nevada Wolf, Inc. determined at the end of the year that estimated uncollectible accounts was $50,000. If the Allowance for Doubtful Accounts currently has an unadjusted debit balance of $10,000, what is the amount of bad debts to be recorded at the end of the year?

$60,000

What was the amount of write-offs during the year?

$60,000

Grayhawk Company reported net credit sales of $588,000 for the year ending December 31, 2019. On January 1, 2019, the Allowance for Doubtful Accounts had a credit balance of $14,400. During 2019, $24,000 of uncollectible accounts receivable were written off. Grayhawk has experienced bad debt losses of 3% of credit sales in prior periods. Using the percentage of credit sales method, what is the adjusted balance in the Allowance for Doubtful Accounts at December 31, 2019?

$8,040

Libby Company uses the percentage of credit sales method for calculating Bad Debt Expense. The company reported $216,000 in total sales during the year; $178,000 of which were on credit. Libby has experienced bad debt losses of 5% of credit sales in prior periods. What is the estimated amount of Bad Debt Expense for the year?

$8,900

Cachet Co. has the following information: Adjusted balance in Allowance for Doubtful Accounts $3,000 Bad debts estimated for the current year 8,000 Unadjusted credit balance in Allowance for Doubtful Accounts 4,000 No recoveries were recorded during the year. What was the amount of accounts written off during the year?

$9,000

The unadjusted trial balance at the end of the year includes the following: Accounts Receivable $ 196,000 Allowance for Doubtful Accounts 2,000 Both accounts have normal balances. The company uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $11,600. What is the amount of Bad Debt Expense to be recorded for the year?

$9,600

Lakeview Inc. uses the allowance method. During the year, Lakeview concludes that specific customers will never pay their account balances, which total $6,844. The entry to record the write-off of these accounts receivable would debit:

Allowance for Doubtful Accounts and credit Accounts Receivable for $6,844.

Utopia Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 3% of net credit sales will not be collected. To record the potential bad debts, Utopia Corporation would debit:

Bad Debt Expense and credit Allowance for Doubtful Accounts for $180.

Phantom Inc. has an unadjusted debit balance of $5,250 in its Allowance for Doubtful Accounts. The company has experienced bad debt losses of 2% of credit sales in prior periods. Phantom reported net credit sales of $2,250,000 for the current period. To record the potential bad debts, Phantom would debit:

Bad Debt Expense for $45,000.

Accounts Receivable, Net (or Net Accounts Receivable) equals Accounts Receivable (gross) minus:

Bad Debt Expense.

Which of the following statements about extending credit is not correct?

Bad debts arise from credit sales to individual consumers, but not from credit sales to other companies.

Carrington Company uses the allowance method for recording bad debts. On February 1, Carrington wrote off a $3,500 customer account balance when it became clear that the particular customer would never pay. On May 29, Carrington unexpectedly received a check for $3,500 from the customer. On May 29, Carrington will:

Debit Accounts Receivable and credit Allowance for Doubtful Accounts for $3,500; debit Cash and credit Accounts Receivable for $3,500.

A customer of Halifax Manufacturing recently filed for bankruptcy protection two months ago, leading Halifax's credit manager to conclude that the company would never collect the balance of $15,600 owed by the customer. Which of the following journal entries would be made by Halifax to record the write-off of the customer's Accounts Receivable balance?

Debit Allowance for Doubtful Accounts and credit Accounts Receivable for $15,600.

At the end of the period, the manager of Olive Co. estimated that $80,000 of its accounts receivable were uncollectible. If the Allowance for Doubtful Accounts has a credit balance of $22,400, which of the following sets forth the adjusting entry to record bad debts for the period? Assume the allowance method is used.

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $57,600.

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts.

The challenge businesses face when estimating the allowance for previously recorded sales is that:

at the time of the sale, it is not known which particular customer will not make their payment.

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ________ and causes total assets to:

credit; decrease.

Which of the following are similarities between a six-month note receivable and an account receivable? They both are:

current assets.

The potential disadvantages of extending credit include all of the following except:

customers buying too much.

The accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called the:

expense recognition principle ("matching").

Recording the estimate of bad debt expense:

follows the expense recognition ("matching") principle.

Notes Receivable differ from Accounts Receivable in that Notes Receivable:

generally charge interest from the day they are signed to the day they are collected

Your company uses the aging of accounts receivable method. Net credit sales are unchanged from last year, the year-end balance in Accounts Receivable is unchanged from the previous year's ending balance, and there were no write-offs during the current year. The company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category at the end of the current year. The dollar amount of the adjustment to record Bad Debt Expense in the current year:

increases, thus increasing the ending balance of the Allowance for Doubtful Accounts account.

The entry to record a recovery causes:

net accounts receivable to stay the same.

Cambridge Co. uses the allowance method. During January 2019, Cambridge writes off a $640 customer account balance when it becomes clear that the customer will never pay. The entry to record the write-off will:

not affect expenses in 2019.

Allowance for Doubtful Accounts is a:

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

Countryside Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. In conformity with the expense recognition principle, the company should:

record an estimate of Bad Debt Expense in the same period as the lawn care is provided.

Adams Co. uses the allowance method of determining bad debt expense. It collects $250 from a customer that Adams had previously written-off. As a result of collecting this $250, its:

total assets remains the same.

The potential advantages of extending credit to customers include all of the following except higher:

wage expenses

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n):

write-off of a specific customer's account.

Morrow Inc. uses the percentage of credit sales method of estimating doubtful accounts. The Allowance for Doubtful Accounts has an unadjusted credit balance of $2,700 and the company had $140,000 of net credit sales during the period. Morrow has experienced bad debt losses of 6% of credit sales in prior periods. After making the adjusting entry for estimated bad debts, what is the ending balance in the Allowance for Doubtful Accounts account?

$11,100

If the unadjusted credit balance in the Allowance for Doubtful Accounts account before is $30,000, what would be the amount of the adjustment for bad debts?

$128,000

Rimrock, Inc. used the aging of accounts receivable method. At December 31, management determined that the net realizable value of accounts receivable was $608,000. The balance in Accounts Receivable was $768,000 and the unadjusted credit balance in Allowance for Doubtful Accounts was $32,000. What was the amount of Bad Debt Expense for the year?

$128,000

Creek Co. uses the percentage of credit sales method in determining its bad debt expense. The following information comes from the accounting records of Creek Co.: What is the estimate of bad debt expense?

$36,000

Legacy Company uses the aging of accounts receivable method. The company performed an aging of accounts receivable on December 31 and gathered the following information: Accounts Receivable $ 420,000 Unadjusted Credit balance in Allowance for Doubtful Accounts 16,000 Estimated Uncollectible Accounts Receivable 23,200 What is the amount of Accounts Receivable, Net that will be reported on the balance sheet at December 31?

$396,800

Kelton Inc. reported net credit sales of $450,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $750. The company has experienced bad debt losses of 1% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?

$4,500

Using the aging method of accounts receivable method, $5,000 of the company's Accounts Receivable are estimated to be uncollectible. At the end of the year, the balance of Accounts Receivable is $100,000 and the unadjusted credit balance of the Allowance for Doubtful Accounts is $500. Credit sales during the year totaled $150,000. What is the current year's Bad Debt Expense?

$4,500

Wheeling Inc. uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $5,000. At the end of the year, the balance of Accounts Receivable is $100,000 and the unadjusted debit balance of the Allowance for Doubtful Accounts is $500. Credit sales during the year totaled $150,000. What is the estimated Bad Debt Expense for the current year?

$5,500

Libre, Inc. has experienced bad debt losses of 4% of credit sales in prior periods. At the end of the year, the balance of Accounts Receivable is $100,000 and the Allowance for Doubtful Accounts has an unadjusted credit balance of $500. Net credit sales during the year were $150,000. Using the percentage of credit sales method, what is the estimated Bad Debt Expense for the year?

$6,000

A company's unadjusted trial balance at the end of the year includes the following: Accounts Receivable $98,000 Unadjusted debit balance in Allowance for Doubtful Accounts $1,000 The company uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $5,800. What is the amount of Bad Debt Expense to be recorded for the year?

$6,800

On June 12, because management knew with near certainty that it had no chance of collection, Sheave Company wrote off a customer's account balance in the amount of $350. On November 3, the customer mailed a payment for $350 to Sheave. To record the receipt of this payment from the customer, the company would debit:

Accounts Receivable and credit Allowance for Doubtful Accounts, and then debit Cash and credit Accounts Receivable.

The Allowance for Doubtful Accounts account is a contra-account that offsets:

Accounts Receivable.

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

Additional sales revenue

Which method for estimating bad debts is generally considered to be the most accurate?

Aging of accounts receivable method

Marilyn Corporation uses the allowance method. Marilyn writes off a $560 customer account balance when it becomes clear that the customer will never pay. Marilyn should debit:

Allowance for Doubtful Accounts and credit Accounts Receivable for $560.

The adjusting entry to record the estimated bad debts in the period credit sales occur would normally include a debit to:

Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

A customer of Halifax Manufacturing recently filed for bankruptcy protection two months ago, leading Halifax's credit manager to conclude that the company would never collect the balance of $15,600 owed by the customer. Suppose that three months after filing bankruptcy, Halifax's customer paid its outstanding account balance. Which of the following journal entries would be made to record this transaction?

Debit Accounts Receivable and credit Allowance for Doubtful Accounts for $15,600; debit Cash and credit Accounts Receivable for $15,600.

As of December 31, Frappe Company has a balance of $5,000 in accounts receivable. Of this amount, $500 is past due and the remainder is not yet due. Frappe has a credit balance of $45 in the Allowance for Doubtful Accounts. Frappe Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts. How will the Bad Debt Expense account be included in the required adjusting journal entry at year-end

Debit of $50

Kata Company uses the allowance method. On May 1, Kata wrote off a $22,000 customer account balance when it becomes clear that the particular customer will never pay. The journal entry to record the write-off on May 1 would include which of the following?

Debit to Allowance for Doubtful Accounts and credit to Accounts Receivable.

Why are estimates of bad debts used to record uncollectible amounts of accounts receivable?

Doing so avoids violating the expense recognition ("matching") principle.

Which of the following statements about the tradeoffs of extending credit is not correct?

Even if there are no bad debts from credit sales, the delayed receipt of cash will always increase additional costs beyond the increased revenue from the credit sales

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Expense recognition principle ("matching")

There are advantages and disadvantages to extending credit to customers. Which of the following statements below expresses the general reason for extending credit?

Gross profits exceed bad debt costs

IBM signs an agreement to lend one of its customers $200,000 to be repaid in one year at 5% interest. IBM would record this loan as:

Notes Receivable.

The balance of the Allowance for Doubtful Accounts was $12,656 at the beginning of the year and $14,348 at the end of the year. Bad Debt Expense was $3,879 for the year. Recoveries in the amount of $100 were recorded during the year. Which of the following statements is correct?

The Allowance for Doubtful Accounts account was debited for $2,287 to record write-offs during the year.

Which of the following statements about the Allowance for Doubtful Accounts is correct?

The Allowance for Doubtful Accounts has a normal credit balance.

A subsidiary account is:

a separate account maintained internally for billing purposes.

Removing an uncollectible account and its corresponding allowance from the accounting records is called:

a write-off.

Accounts receivable:

are amounts owed to a business by its customers.

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to:

bad debt expense.

The Allowance for Doubtful Accounts will have a debit balance before adjustments when:

bad debts were underestimated at the end of the prior period.

The adjusting entry used to record the estimated bad debts in the period credit sales occur decreases:

both net income and net accounts receivable.

If a company did not extend credit to customers:

costs would decrease but so would sales revenue.

The adjusting entry to record the allowance for doubtful accounts includes a:

debit to Bad Debt Expense.

Extending credit to customers will introduce all of the following additional costs except

decreased gross profit from reduced sales.

The write-off of a specific customer account receivable involves decreasing an asset account and:

decreasing a contra-asset account.

The adjusting entry to record the estimated bad debts in the period credit sales occur includes a debit to an:

expense account and a credit to a contra-asset account.

Companies are concerned about the cost of extending credit for all the following reasons except the:

expense of the extra goods that must be produced or purchased for resale

Your company has previously averaged about 16% of its accounts receivable in the "over 90 days past due" category. This year management forecasts that 20% of its accounts receivable will be in this category at the end of the current year. The company uses the aging of accounts receivable method of estimating Bad Debt Expense. If the total of credit sales and year-end balance in accounts receivable remain unchanged from the previous year and no write offs were made during the current year, this year's bad expense will:

increase over the estimate for previous months.

All of the following will likely be incurred by a company that extends credit except:

increased advertising expenses.

On the balance sheet, the Allowance for Doubtful Accounts:

is subtracted from Accounts Receivable.

To ensure that the Allowance for Doubtful Accounts account does not become materially misstated over time, companies revise overestimates of prior periods by:

lowering estimates in the current period.

The entry to adjust the Allowance for Doubtful Accounts causes total:

stockholders' equity to decrease.

Countryside Corporation is owed $11,890 from a customer for landscaping. The account is overdue and the customer is having difficulty paying. Countryside might ask the customer to sign a note for the unpaid amount to:

strengthen Countryside Corporation's legal right to be repaid with interest.

For billing and collection purposes, companies keep a separate accounts receivable account for each customer called a:

subsidiary account.

Bad Debt Expense is a:

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

When the allowance method is used, the entry to record the write-off of specific uncollectible accounts would decrease:

the Allowance for Doubtful Accounts account.

An objective of the expense recognition principle ("matching") is to have bad debt expense debited in

the same period the related credit sales are recorded.

Assume the Hart Company uses the allowance method. When the company writes off a customer's account balance that has no chance of collection:

total assets do not change.