ACCT 211 Ch7 Accounting for Receivables

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

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:

$600

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.

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.

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

Notes Receivable

An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates

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 for $150.

Maturity date

Day that the principal and interest must be paid

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

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.)

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

Maker

One who signed the note and promised to pay at maturity

A company sells merchandise to a customer on credit. The journal entry to record this transaction would include a debit entry to the Accounts ______ account.

Receivable

Payee

The person to whom the note is payable

A(n) ____________ 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.

accounts receivable turnover

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

accounts; notes

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

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.

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

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

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

$970

An accounts receivable ledger:

-records journal entries that affect accounts receivable -is a supplementary record to maintain an account for each customer

Accounts Receivable

Amounts due from customers for credit sales

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

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

general; subsidiary

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:

$5000

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

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 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.)

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

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

Lina Co. uses the allowance method to account for bad debts. On January 28, Lina determines that a $200 balance from ZRT, Inc. is uncollectible and writes the balance off. The journal entry to write this balance off will include a: (Check all that apply.)

-debit to Allowance for Doubtful Accounts. -credit to Accounts Receivable - ZRT.

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

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). January 19

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

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

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

Receivable

Amount due from another party

Principal

Amount that the signer agrees to pay back, not including interest

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

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

Interest

Charge from using money loaned from one entity to another

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

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.

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. Reason: The adjusting entry for Lion Company is to credit interest revenue for $37.50 [$15,000 x .06 x (15/360)]. Interest receivable would be debited.

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

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

aging

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

contra

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

A _________________ is an amount due from another party.

receivable

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:

400,000 * 1% = 4,000 + 400 = 4,400

Promissory note

Written promise to pay a specified amount of money

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

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

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

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the _____________________ account before recording a debit to the Cash account.

Bad debts expense

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

total uncollectible accounts

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.)

-credit to Bad Debts Expense. -debit to Cash.

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.