Financial Accounting Ch7

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 Reason: $400,000 x 1% = 4,000 + 400 = $4,400

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 Reason: Since this is based on a percentage of sales, you should simply multiply $500,000 x .01 = $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

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 Reason: $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.

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

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

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 _______ account.

Accounts Receivable

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:

Accounts Receivable - AZC for $5,100

Match the definitions to the appropriate terms.

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

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit 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

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:

Bad Debt Expense.

A company sells merchandise to a customer on credit. The journal entry that the company makes to record this sale would include a (debit/credit) to the sales account.

CREDIT

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

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).

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

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

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

General Subsidiary

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).

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.

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 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 the estimated amount to be collected Matches expenses in the same period with the related sales

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 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 records estimated bad debts expense in the period when the related sales are recorded.

allowance

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

cash

In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit)_________ to accounts receivable

credit

On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a: (Check all that apply.)

credit to Accounts Receivable - A. Winds. debit to Bad Debts Expense.

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.)

debit to Cash. credit to Accounts Receivable.

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.)dit); 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:

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

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

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

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/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.

maker payee

A _________________ is an amount due from another party.

receivable

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:

$7,500 Reason: When allowance method is based on sales, do not take into account previous balance in the allowance account. $1,500,000x.005=$7,500.

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

A company sells merchandise to a customer on credit. The journal entry that the company makes to record this sale would include a __________(debit/credit) to the sales account.

credit

Zion Company sells merchandise on credit 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.