Chapter 7 smartbooks

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.) debit to Accounts Receivable for $6,060. credit to Notes Receivable for $6,060. debit to Notes Receivable for $6,000. credit to Accounts Receivable for $6,000.

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

A _________________ is an amount due from another party.

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.) to quickly increase profit. the company does not want to deal with collecting receivables. the company needs cash. to satisfy customer's needs.

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

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

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

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

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.) Requires no accounting estimates Matches expenses in the same period with the related sales Reports accounts receivable balance at the estimated amount to be collected

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

Match the following terms to the appropriate definitions. Instructions- Promissory note Principal Interest Maker Payee Maturity date

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 ____________ 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

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

Match the definitions to the appropriate terms. Instructions Accounts receivable Notes receivable Receivable

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 Amount due from another party

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

April 16 Reason: February 28th - February 15th = 13 days + 31 days for March = 44 days; 60 total days - 44 days = 16; therefore, April 16.

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

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 Reason: Cash will be debited for $10,100. $10,000 x .06 x (60/360)=$100. $10,000+$100=$10,100.

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

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.

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

aging

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

$400 Reason: $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.

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

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

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).

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 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.

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: Multiple choice question. $795,000 $750,000 $7,100 $7,900 $7,500

$7,500 Bad debt expense: = Sales X Estimated percentage uncollectible = $1,500,000 X 0.5% = $7,500

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 ________ 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.

accounts receivable turnover