Chapter 7 (acc 201)
Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is:
$4000 Adjusted balance required in Allowance account = $ 100,000 [accnts receivable] *0.05 = $ 5,000 Credit Existing Unadjusted balance in Allowance account = $ 1000 Credit!! Bad Debt Expense = $ 5000 - $ 1000 = $ 4,000
Under the allowance method, bad debts expense is recorded with an adjustment at the end of each accounting period that debits the Bad Debts Expense account and credits the Allowance for Doubtful Accounts. The uncollectible accounts are later written off with a debit to the Allowance for Doubtful Accounts.
(just know this lol)
Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, it wrote off an $2,200 account of a customer, C. Green. On March 9, it receives a $1,700 payment from Green. 1. Prepare the journal entry for January 31 2. Prepare the journal entries for March 9; assume no additional money is expected from Green.
1. Record the write-off of Green's $2,200 account. dr allowance for doubtful accounts 2200 cr Accounts receivable—C. Green 2200 2. Record the reinstatement of Green's account, assuming no additional money is expected. dr accounts receivable—C. Green 1700 cr allowance for doubtful accounts 1700 3. Record the cash receipt from Green. dr Cash 1700 cr Accounts receivable—C. Green 1700
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable $35,000 debit Allowance for uncollectible accounts 500 credit Net Sales 180,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
1080 Bad Debts Expense=Net Sales× Percentage of net credit sales uncollectible.
A 60-day, 11 percent, promissory note dated June 10 matures on: August 7 August 8 August 9 August 10 August 11
August 9 June = 30 days - June 10th = 20 days July = 31 days (so far 20+31=51 days) 60-51= 9 days --> august 9th
The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that
The adjusted balance is equal to the estimate of the uncollectible accounts receivable
All of the following statements regarding the allowance method are true except:
The allowance method does not record bad debt expense until a customer's account receivable is determined to be uncollectible.
The supplementary record providing information on each customer is called the
accounts recievable ledger
Which of the following is an accounting method that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?
allowance method of accounting for bad debts
Honoring a note receivable indicates that the maker has:
paid in full
Total interest to be earned on a $7,500, 5%, 90-day note is:
principal*rate*time 7500*0.05*(90/360)=93.75 [using 360 days in a year]
The total interest that is due at maturity on a $1,500, 12 percent, 120-day note is
1500*0.12*(120/360) = 60 (principal of the note x annual interest rate x time expressed in fraction of year = interest)
Louvers, Inc., accepted a $15,000, 180-day, 10 percent note from a customer on May 31. On June 30, Louvers prepared a period-end adjusting entry to accrue the $125 of interest owed on the note. The note is honored on November 27.
15000*0.10*(180/360) = 750 interest June 30 thru Nov 27 = 150 days dr cash 15750 (15000+750) cr Interest Revenue for $625 ($15,000*0.10*(150/360)) cr Interest Receivable for $125 (from problem) cr Notes Receivable for $15,000 (the principal)
Bailey Company has $200,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. An aging of its accounts receivable suggests that $12,000 of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is
21,000 (12,000+9,000)
MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards. MacKenzie electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record this sale transaction would be:
4% of sale value = $180 × 4% = $7.2 = Sale value - service charges = $180 - $7.2 = $172.8 dr cash $172.8 dr credit card exp. $7.2 cr sales $180
A company receives a $9,000, 8%, 60 day note. The maturity value of the note is:
9000*0.08*(60/360) = 120 9000+120=9120
Using the allowance method for bad debts, the end of the period adjusting entry for estimated bad debts is:
Debit Allowance for Doubtful Accounts and Credit Accounts Receivable
MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be:
Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.
Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?
Interest = $7200 * 0.06 * 120/360 Interest = $144. money expected from the client is $7200 + $144 = $7,344. dr Debit account receivable $7,344 cr interest revenue $144 cr note receivable $7,200
Louvers, Inc., accepted a $15,000, 180-day, 10 percent note from a customer on May 31. Louvers plans to prepare financial statements as of June 30, the end of its fiscal year.
June 30 - May 31 = 30 days 15000*0.10*30/360= 125 dr interest receivable 125 cr interest rev 125
On July 18, Jerry Pope signed a note when he borrowed $1,200 at 12 percent for 30 days from Second National Bank. In this situation: Pope is the payee of the note Pope is the maker of the note Pope is the principal of the note The bank is the maker of the note The bank is the endorser of the note
Pope is the maker of the note bank is payee; to Pope the note is a liability called note payable; to the bank the note is an asset called notes recievable; amt borrowed is principal to a borrower, interest is exp to a lender, interest is rev
The allowance method of accounting for bad debts has the following advantages over the direct write-off method including: Records estimated bad debts expense in the period when the related sales are recorded. Records estimated bad debts expense when the account receivable is determined to be uncollectible. Reports accounts receivable on the balance sheet at the estimated amount of cash to be collected. Reports sales on the income statement at the estimated amount of cash to be collected.
Records estimated bad debts expense in the period when the related sales are recorded. Reports accounts receivable on the balance sheet at the estimated amount of cash to be collected.
A note receivable is a written promise to pay a specified amount of money at a stated future date. The maturity date is the day the note (principal and interest) must be repaid. Interest rates are normally stated in annual terms.
The amount of interest on the note is computed by expressing time as a fraction of one year and multiplying the note's principal by this fraction and the annual interest rate. --> (principal of the note x annual interest rate x time expressed in fraction of year = interest) A note received is recorded at its principal amount by debiting the Notes Receivable account. The credit amount is to the asset, product, or service provided in return for the note.
Separate accounts receivable information for each customer is important because it reveals all of the following except:
When the customer intends to pay outstanding balances.
Kirov, Inc. reports credit sales of $200,000 for the year ending December 31. The year-end unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. Experience suggests 6 percent of its net sales will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in its year-end adjusting entry is
credit sales 200000*0.06 = 12000
A company's Accounts Receivable balance at its December 31 year-end is $125,650, and its Allowance for Doubtful Accounts has credit balance of $328 before year-end adjustment. Its net sales are $572,300. It estimates at 4% of outstanding accounts receivable are uncollectable. What amount of bad debts expense is recorded at December 31?
current credit balance: 328 balance should be: (125,650*0.04) = 5026 5026-328=4698 --> adjusted balance = bad debts expense recorded
A company's Accounts Receivable balance at its December 31 year-end is $489,300, and its Allowance for Doubtful Accounts has a debit balance of $554 before year-end adjustment. Its net sales are $1,300,000. It estimates at 6% of outstanding accounts receivable are uncollectible. What amount of bad debts expense is recorded at December 31?
current debit balance: 554 balance should be: (489,300*0.06) = come back to this one
Failure by a promissory notes' maker to pay the amount due at maturity is known as:
dishonoring the note
On December 31, management had determined that it would not be able to collect the $1,200 owed to it by one of its customers. On Jan 15 in the next year, a check in the amount of $600 was unexpectedly received from this customer. Management does not expect any future collections from this customer. The company uses the allowance method to account for its uncollectible accounts. Prepare the journal entry to record the reinstatement of the account receivable
dr Accounts Receivable $600 cr Allowance for doubtful accounts $600
Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:
dr Accounts Receivable—A. Hopkins 2,000 cr Allowance for Doubtful Accounts 2,000 dr Cash 2,000 cr Accounts Receivable—A. Hopkins 2,000
Messing Company has its own credit card and makes a credit sale on February 1 to one of its customers for $5,000. Prepare the journal entry.
dr accnts recievable 5000 cr sales 5000
On December 1, after making a concerted effort, management determines that it will be unable to collect $1,200 owed to it by one of its customers. This company uses the allowance method to account for uncollectible accounts. Prepare the necessary December 1 journal entry to write off this $1,200 uncollectible account journal entry.
dr allowance for doubtful accnts 1200 cr accnts recievable 1200
Carlton Company uses the percent of sales method to estimate its bad debt expense. Based on past experience, the company estimates 2 percent of credit sales to be uncollectible. At the end of the current year, the company's unadjusted trial balance shows Accounts Receivable of $245,000 and Credit Sales of $900,000.
dr bad debt exp 18,000 (900,000*0.02) cr allowance for doubtful accnts 18k
Cosmo Company reported credit sales of $345,000 for the calendar year in its first year of operations. At December 31, customers buying on credit owed $35,000 to the company. Based on the experience of similar businesses, management estimates that $3,500 of its accounts receivable will be uncollectible. Prepare the necessary journal entry.
dr bad debt expense 3500 cr allowance for doubtful accnts 3500
At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
dr bad debts exp 16125 cr allowance for doubtful accnts 1615 (15750+375)
Android Products, Inc., agreed to accept a $1,000, one-year, 10 percent note from C. Mate. On its maturity date of December 16, Mate honors the note by making a payment of $1,100. That payment consisted of the principal of $1,000 plus interest in the amount of $100 (computed as $1,000 x 10%).
dr cash 1100 cr notes receivable 1000 cr interest revenue 100
On March 15, Viking Office Supply agrees to accept $1,200 in cash along with a $2,800, 60-day, 15 percent note from one of its customers to settle his $4,000 past-due account.
dr cash 1200 dr notes receivable 2800 cr accnts receivable 4000
Messing Company has an agreement with a third-party credit card company, which calls for cash to be received immediately upon deposit of customers' credit card sales receipts. The credit card company receives 3.5 percent of card sales as its fee. Messing has $4,000 in credit card sales on January 1. Prepare the journal entry.
dr cash 3860 dr credit card expense 140 cr sales 4000 3.5% --> 3.5/100 = 0.035 4000*(0.035) = 140 (this is credit card expense) 4000-140 = 3860 (this is cash)
On December 31, management had determined that it would not be able to collect the $1,200 owed to it by one of its customers. On Jan 15 in the next year, a check in the amount of $600 was unexpectedly received from this customer. Management does not expect any future collections from this customer. The company uses the allowance method to account for its uncollectible accounts. Prepare the journal entry to record the receipt of cash.
dr cash 600 cr accnts receivable 600
On January 15, Ross Furniture, Inc., accepts a $5,000, 180-day, 10 percent note from a customer at the time of a product sale. Prepare journal entry.
dr notes recievable 5000 cr sales 5000 The note is reported as an asset (current asset) until it matures.
Sellers allow customers to use credit cards for all of the following reasons: seller does not have to decide who gets credit seller accepts the risk for extending credit to customers seller receives cash sooner than if credit is granted directly to the customers may allow seller to increase sales volume seller determines which customers receive credit and how much
seller does not have to decide who gets credit seller receives cash sooner than if credit is granted directly to the customers may allow seller to increase sales volume wrong answers: seller accepts the risk for extending credit to customers seller determines which customers receive credit and how much
percent of accounts receivable method
uses an analysis of accounts receivable to estimate the amount that will be uncollectible accounts recievable * percent = estim amt of uncollectible accnts
A company can accelerate its cash receipts by all of the following EXCEPT: offering discounts for early payment. accepting national credit cards for customer purchases. selling receivable to a factor. writing off receivables.
writing off receivables offering discounts = customers will pay sooner if offered discounts accepting cr cards = bank gives company money, customer owes bank money, allows customer to get money quickly? selling receivable = u need money fast, selling it will give u cash immediately so accelerates writing off receivables = not giving u any cash, doesnt accelerate cash receipts