ch.5 HW

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate

credit policies are too lenient

A high ratio of allowance for uncollectible accounts to total accounts receivable can indicate: (Select all that apply.)

the company's customers are high-risk the company extends too much credit

Which method of accounting requires estimating bad debt expense and recording the expense in the same period as the related revenue?

Allowance method

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

Recording bad debt expense: (Select all that apply.)

-increases expenses -decreases assets -decreases net income

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

18,000

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Credit to Accounts Receivable Debit to allowance for Uncollected accounts

On March 5, Oak Corp. provided services on account to Pine. Oak initially recorded this as an account receivable but it later became apparent Pine could not pay quickly so Oak required Pine to sign a $100,000, 12%, 2-month interest-bearing note. The journal entry required by Oak when Pine signs the note includes

Debit Notes Receivable $100,000; credit Accounts Receivable $100,000.

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?

Direct write-off method

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip initially recorded this as an account receivable but it later became apparent Daffodil could not pay quickly so Tulip required Daffodil to sign $40,000, 10%, 3-month interest-bearing note. The entry required on Tulip's books when Daffodil signs the note would include a

debit to Notes Receivable, $40,000.

What are the financial statement effects of recording bad debt expense using the allowance method?

decrease assets increase assets