Chapter 7: SmartBook

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

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit 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

Match the definitions to the appropriate terms. Accounts receivable Notes receivable Receivable Amount due from another party Amount due from customers from credit sales An asset of a written promise to receive a definite sum of money on demand or on specific future dates

Accounts receivable - Amounts due from customers for credit sales Notes receivable - An asset of a written promise to receive a definite sum of money on demand or on specific future dates Receivable - Amount due from another party

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

April 16

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

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.

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

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.

JD Co. had $1,000 of credit cards sales. The net cash receipts were deposited immediately into JD Company's bank account less a 3% fee. The entry to record this sales transaction would include the following debit entries. (Check all that apply.)

Credit Card Expense for $30 Cash for $970

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

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.

On November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On 12/31, the appropriate 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 would include a credit to: (Check all that apply.)

Interest Revenue for $10. Interest Receivable for $20. Notes Receivable for $2,000

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

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

Woodstock Co. had $500 of credit cards sales. The net cash receipts were deposited immediately into Woodstock's bank account less a 2% fee. The entry to record this sales transaction would include a credit to:

Sales in the amount for $500

True or false: A note is honored when it is paid in full.

True

Bad debts are:

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

A(n) ____________ is a supplementary record created to maintain a separate account for each customer.

accounts receivable ledger

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

aging

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 matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note and fails to pay. The journal entry that Ian would record on the due date would include a: (Check all that apply.)

debit to Accounts Receivable - Ali for $1,025. credit to Notes Receivable for $1,000. credit to Interest Revenue for $25.

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.

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

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

$4,400

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

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

January 19

Match the following terms to the appropriate definitions. Promissory note Principle Interest Maker Payee Maturity date One who signed the note and promised to pay at maturity Amount that the signer agrees to pay back, not including interest The person to whom the note is payable Charge from using money loaned from one entity to another Day that the principal and interest must be paid Written promise to pay a specified amount of money

Promissory note - Written promise to pay a specified amount of money Principle - 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

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

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. 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.)

debit to Cash. credit to Bad Debts Expense.

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable

A _________________ is an amount due from another party.

receivable

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.)

to quickly generate cash. to reduce risk of nonpayment.

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

total uncollectible accounts

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

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

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.)

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

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

On February 15, Symth Co. determines that it cannot collect $500 owed 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: (Check all that apply.)

credit to Accounts Receivable - A. Winds. debit to Bad Debts Expense.

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:

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

The principal and interest of a note are due on its maturity date. The maker of the note usually _________________ (makes/honors/dishonors) the note and pays it in full.

honors

_________________ (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.

Blank 1: Bad Blank 2: Debts

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.

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 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.)

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

An accounts receivable ledger: (Check all that apply.)

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

Companies sometimes convert receivables to cash before they are due. When a company sells its receivables, it is called _________________ (pledging/factoring). When a company uses receivables as collateral for a bank loan, it is called _________________ (pledging/factoring).

Blank 1: factoring Blank 2: pledging

The _________________ (maker/signer) 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.

Blank 1: maker Blank 2: payee

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.

Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia 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

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Cash in the amount of $10,100

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

contra

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