ch 8 acct

Under the direct write-off method,

bad debt expense is recorded when specific customer accounts are determined to be uncollectible.

When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method?

The result is based on either (1) a percentage of sales or (2) an analysis of receivables. * Under the direct write-off method, when an account is deemed uncollectible, it is directly expensed at that point.

A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is

$10,200. *The maturity value of a note is the face amount plus interest. This is calculated as $10,000 + [$10,000 × 12% × (60/360)] = $10,200.

Using the following end-of-year information, calculate the number of days' sales in receivables for Year 2. Year 2: Sales are $82,500; average accounts receivable is $11,000. Year 1: Sales are $78,000; average accounts receivable is $10,000.

48.7

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful accounts?

Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500 *When using the analysis of receivables method, the calculated amount is the desired ending balance of the allowance account. Thus, the $500 credit balance must be subtracted from the desired ending balance ($15,000 - $500 = $14,500) to determine the amount of the adjustment.

The numerator in the number of days' sales in receivables calculation is

The numerator in the number of days' sales in receivables calculation is Average Accounts Receivable.

A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is

$10,300. *The maturity value of a note is face amount plus interest. This is calculated as $10,000 + [$10,000 × 12% × (90/360)] = $10,300.

On December 1, Bright Company receives a 6% interest-bearing note from Galvalume Company to settle a $20,000 account receivable. The note is due in three months. At December 31, Bright should record interest revenue of

$100. *The interest revenue would be calculated as ($20,000 × 6% × 1/12) = $100. One month is used as there is only one remaining month in the year.

If Accounts Receivable for Fiona Industries is equal to $445,400 and Allowance for Doubtful Accounts is $13,700 at December 31, what is the amount of net receivables shown on Fiona's balance sheet of the same date?

$431,700 *The net amount of receivables is calculated as $445,400 − $13,700 = $431,700.

If Accounts Receivable for Sally Company is equal to $56,850 and Allowance for Doubtful Accounts is $2,375 at December 31, what is the amount of net receivables shown on Sally's balance sheet of the same date?

$54,475 *The net amount of receivables is $56,850 − $2,375 = $54,475.

Financial statement data for the year ending December 31 for Flagg Co. are as follows: Sales--$4,250,000 Accounts receivable: Beginning of year--600,000 End of year--630,000

52.8 days * ($600,000 + $630,000)/2 = $615,000; $4,250,000/365 = $11,644; $615,000/$11,644 = 52.8 days

Financial statement data for the year ending December 31 for Gore Co. are as follows: Sales--$4,250,000 Accounts receivable: Beginning of year---600,000 End of year---$630,000

6.91 *$4,250,000/[($600,000 + $630,000)/2] = 6.91

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $16,000. Which of the following entries records the proper provision for doubtful accounts?

Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500 *When using the analysis of receivables method, the calculated amount is the desired ending balance of the allowance account. Thus, the $500 credit balance must be subtracted from the desired ending balance ($16,000 - $500 = $15,500) to determine the amount of the adjustment.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and Bad Debt Expense is estimated at 2% of sales. If sales are $500,000, the adjusting entry for uncollectible accounts would include

a credit to Allowance for Doubtful Accounts of $10,000. * $500,000 × 2% = $10,000. The balance in Allowance for Doubtful Accounts is ignored.

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the allowance method would include

a credit to Allowance for Doubtful Accounts of $3,650. *the journal entry to reinstate the account under the allowance method would be: Accounts Receivable—Connor Young---3,650 Allowance for Doubtful Accounts---3,650

If Ohio Company received $2,250 as partial payment on the $5,500 account of Carson Mueller Company and wrote off the remaining balance as uncollectible, the only difference between recording the entry under the direct write-off method and the allowance method (assuming that an adequate allowance account had been set up) would be

a debit to Bad Debt Expense for $3,250 under the direct write-off method rather than a debit to Allowance for Doubtful Accounts for $3,250 under the allowance method. *Under the direct write-off method, the debit is to Bad Debt Expense.

Two financial measures that are especially useful in evaluating efficiency in collecting receivables are the

accounts receivable turnover and the number of days' sales in receivables. *The accounts receivable turnover and the number of days' sales in receivables are two financial measures that are useful in evaluating efficiency in collecting receivables.

The two methods of accounting for uncollectible receivables are the direct method and the __________ method.

allowance

Allowance for Doubtful Accounts will have

an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance. *Allowance for Doubtful Accounts will have an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance.

Allowance for Doubtful Accounts is a(n)

contra asset account. *Allowance for Doubtful Accounts is a contra asset account deducted from Accounts Receivable on the balance sheet.

All receivables that are expected to be realized within a year are reported in the __________ section of the balance sheet.

current assets *All receivables that are expected to be realized within a year are reported in the current assets section of the balance sheet.

Flora Co. uses the allowance method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be to

debit Allowance for Doubtful Accounts and credit Accounts Receivable. *Under the allowance method, the expense is recognized during the period of the sale, and when an account is written off, the allowance is used

Accounts receivable turnover is calculated by dividing

sales by average accounts receivable. *Accounts Receivable Turnover = Sales/Average Accounts Receivable

Extra Co. uses the direct write-off method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would include a

debit to Bad Debt Expense and a credit to Accounts Receivable. *Because the direct write-off method does not include an accrual for bad debt expense at the point of sale, the bad debt expense must be recorded when the loss is discovered.

Establishing an allowance for doubtful accounts under the allowance method is necessary because

estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected. *Under the allowance method, we estimate the bad debt expense in the period the sale is made rather than when it is discovered that an account will not be paid. The allowance for doubtful accounts is used for this estimate because it is not known which specific accounts will not be paid.

Companies may sell their receivables. This practice is called

factoring. *Selling receivables is called factoring the receivables.

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account that had been written off on March 1, the entry to record the cash receipt after the account has been reinstated under the direct write-off method

is the same as it would be under the allowance method. *

The party making the promise to pay the promissory note is the

maker. *The party making the promise to pay the promissory note is the maker.

The receivable that is usually evidenced by a formal instrument of credit is a(n)

note receivable. *the name "note" is associated with the actual signing of a credit instrument as opposed to an open line of credit.

The direct write-off method records bad debt expense

only when an account is judged to be worthless. *The direct write-off method does not accrue bad debt expense in the period the sale is made; it is recorded at the point of default.

The party to whom the promissory note is payable is the

payee. *The party to whom the promissory note is payable is the payee.

The two methods to estimate uncollectible accounts are

percent of sales and analysis of receivables.

Allowance for Doubtful Accounts is

subtracted from Accounts Receivable. *Allowance for Doubtful Accounts is subtracted from Accounts Receivable.

In the current assets section of the balance sheet, receivables are usually listed in order

that they can be turned into cash. *Liquidity is the criteria of order for current assets.

Under the allowance method,

the allowance account and estimates are used.

The face value of a promissory note is

the amount for which the note is written. * The face value of a promissory note is the amount for which the note is written.

The direct write-off method is used by all of the following businesses except

those that have receivables as a large part of their current assets.

Notes and accounts receivable that result from sales transactions are sometimes called

trade receivables.

Other receivables do not include

trade receivables.

Bad Debt Expense is not affected when a cash receipt is recorded.

true