Chapter 7 BUSA7

Conroy Company uses the allowance method to account for bad debts. During 2010, Conroy determined that a balance of $200 for Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

Thomas Co. sold $1,000 worth of merchandise on a bank credit card less a 3% fee. The entry to record the sales transaction would include a debit to Cash in the amount of $.

970

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.

On September 1, Horn Co.

Accounts receivable $3025

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

On August 1, Hanes Co.....

Bad debts expense for $150

Tricon Co. sells $10,000 of its accounts receivables and is charged a 5% factoring fee. It records this sale with a debit to:

Cash for $9,500.

Allowance for Doubtful Accounts is a(n)

Contra

J. Whitlock Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into Whitlock's bank account less a 5% fee. The entry to record this sales transaction would include a debit to:

Credit Card Expense in the amount of $50

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.

Credit to Accounts Receivable Debit to Cash

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.)

Debit Accounts Receivable; Credit Sales

A. Stine Co......

Debit to cash Credit to bad debts 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

On December 1, Christys Co

Interest receivable for $5 NR $1000 IR $5

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

January 19

A note is honored when it is paid in full

True

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 (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

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

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 allowance for doubtful accounts, credit accounts receivable

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.

P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

debit to Credit Card Expense for $20. debit to Cash for $480. credit to Sales for $500.

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

receivable

An accounts receivable ledger:

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

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.

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20—the due date?

$2,000 x 6% x 60/360 = $20

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

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

Match the following terms to 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

Net sales for a company are $250,000. Average accounts receivable are $10,000. The accounts receivable turnover for this company is BLANK

25

Compute accounts receivable turnover for 20x1

4.6

Simon Co. sold $500 of merchandise on their own store credit cards. The entry to record this sales transaction on the date of the sale would include a debit to:

Accounts Receivable for $500

On March 14, zest co. Accepted a 120 days, 6% note....

Accounts receivable-AZC for 5100

Match the definition to the appropriate terms.

Accounts receivable: amount due from customers for credit sales Notes receivable: an asset consisting of a written promise to a receive a definite sum of money on demand or on specific future dates Receivable: amount due from another party

The _____ method of estimating bad debts is see both past and current receivables...

Aging

The method also referred to as a balance sheet method ?

Aging

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16

(Bad/Invalid) (collectible/debts) are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

Bad Debits

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 ______ account before recording a debit to the cash account.

Bad Debts Expense

T. Hillcrest Co. sold $500 of merchandise on a bank credit card less a 5% fee. The entry to record this sales transaction would include debit(s) to:

Cash for $475 and Credit Card Expense for $25

On February 15, Symth Co. determine that it cannot collect $500 owned 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 ?

Credit to accounts receivable-AWinds Debit to bad debts expense

On Jan 1, Franz co

Credit to interest revenue for $25

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 debits expense.

Direct write off

The principal and interest of a note are due on its maturity date....

Honored

Alice Co.....

IR for $10 IReceivable for $20 NR for $2000

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.

The (maker/payee) ______ of the note.....

Marker Payee

The _____ constraint is permitted under GAAP when it's results approximate those under the allowance method.

Materiality

When a company's receivables are used as security for a loan, the company is said to have ______ its receivables.

Pledged

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

Uncollectible accounts

Bad debts are:

accounts of customers who do not pay. an expense of selling on credit. also called uncollectible accounts.

If an account receivable balance previously written off using the direct write-off method is later collected in full, the entry to record the payment must include a credit to:

bad debts expense

To record a customers check in full payment for a sale that was made the prior month, the company should debit the ________ account.

cash

When a note's maker does not pay at maturity, the note is considered

dishonored

Avi Co. raises cash by borrowing $10,000 and pledging $12,000 accounts receivables as security for the loan. To comply with the full disclosure principle, Avi will record a journal entry in the amount of the $10,000 note payable, and also record a (debit/credit/footnote) to the financial statements, indicating that $12,000 of accounts receivables have been pledged.

footnote

To compute interest due on a maturity date, use the formula:

principal x interest rate x time expressed in fraction of year

The expected proceeds from accounts receivable determined by taking accounts receivable less the allowance for doubtful accounts, is called:

realizable value

A ________ is an amount due from another party.

receivable

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 December 31, DVS company

Debit to bad debts expense for $2500 Credit to allowance for doubtful accounts for $2500

The advantages of using the allowance method to account for bad debts include which of the following ?

Reports accounts receivable balance at net realizable value Matches expenses with related sales

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

Leo Co. uses the allowance method to account for bad debts. At the end of 2010, 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.

Acel Co. uses the allowance method to account for bad debts. Early in 2010, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 from CTR. The entries to record the receipt of cash on October 21 would include a debit to:

Accounts Receivable Cash

The direct write off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write off method violations the _________ principle.

Expense

The direct write off method records bad debts....

Expense Recognition

Companies sometimes convert receivables ti cash before they are due....

Factor Pledge

T/F when the maker of a note pays at maturity, the note is said to be dishonored.

False

True or false. The allowance method of accounting....

False

Accounts receivable turnover is calculated using the following formula:

Net Sales / Average Accounts Receivable

Dea Company sold $1,000 of merchandise to a customer who used Dea Company's credit card. The entry to record this transaction on the date of the sale would include:

Sales in the amount of $1,000. Accounts Receivable in the amount of $1,000.

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

aging

At year-end, Avis Company estimates that $2,000 of its accounts receivable balance is uncollectible. Avis uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a credit to:

allowance for doubtful accounts

Finish Co. uses the allowance method to account for bad debts. At the end of 2010, 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