Ch 7: Accounting for Receivables

Conroy Company uses the allowance method to account for bad debts. During the year, Conroy determined that a balance of $200 from 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?

$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:

$4,400

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:

$5,000

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

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:

$6,000

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:

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

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.

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

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

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

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

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

To record a sale on account, the company should debit:

Accounts Receivable

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the Blank______ account.

Accounts receivable

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

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

April 16

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

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

The allowance for doubtful accounts is a(n) (current/contra/opposite) asset account and has a normal credit balance.

Blank 1: contra

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.

Blank 1: expense or matching Blank 2: recognition

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.

Blank 1: honored, honor, or honors

Explain what a control account is by completing the following sentence. A control account appears in the general ledger and is supported by information in a separate ______ (general/subsidiary) ledger.

Blank 1: subsidiary

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

Cash

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 $9,500.

A company estimates that $1,000 of its accounts receivable is uncollectible at the end of the period and will make the following adjusting entry: (Check all that apply.)

Credit to Allowance for Doubtful Accounts Debit to Bad Debts Expense for $1,000

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

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 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.

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.)

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

Bad debts are: (Check all that apply.)

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

The Blank______ 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

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 overdue 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 January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a: (Check all that apply.)

credit to Interest Revenue for $25. credit to Note Receivable for $5,000. debit to Cash for $5,025.

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.

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

The Blank______ 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

The direct write-off method records bad debts expense only when a specific account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the

expense recognition

The direct write-off method records bad debts expense only when a specific account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the Blank______ principle.

expense recognition

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

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. Multiple choice question.

receivable

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.)

the company does not want to deal with collecting receivables. the company needs cash.

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

total uncollectible accounts

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

1. Accounts Receivable 2. Notes Receivable 3. Receivable

1. Amounts due from customers for credit sales 2. An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates 3. Amount due from another party

1. Promissory note 2. Principle 3. Interest 4. Maker 5. Payee 6. Maturity date

1. Written promise to pay a specified amount of money 2. Amount that the signer agrees to pay back, not including interest 3. Charge from using money loaned from one entity to another 4. One who signed the note and promised to pay at maturity 5. The person to whom the note is payable 6. Day that the principal and interest must be paid

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

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 of $150

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 $

Blank 1: 970

(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.

Blank 1: Bad Blank 2: Debts

The (aging/percent) of accounts receivable method uses several percentages, based on long an account is past due, to estimate the allowance.

Blank 1: aging

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

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

January 19

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

Matches expenses in the same period with the related sales Reports accounts receivable balance at the estimated amount to be collected

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

Woodstock Co. had $500 of credit cards sales. The net cash receipts were deposited immediately into Woodstock's bank account less a 2% fee. The entry to record this sales transaction would include a credit to:

Sales in the amount for $500

A note is honored when it is paid in full.

True

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

accounts receivable ledger

The ________ is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period. Multiple choice question.

accounts receivable turnover

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

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.)

debit to Cash. credit to Bad Debts Expense.

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

true

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