Chapter 7

35. Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance Direct Write Off A. Yes Yes B. Yes No C. No Yes D. No No

B. Yes No

Turner Co. estimates its uncollectible accounts expense to be 2% of credit sales. Turner's credit sales for the year were 1,000,000. During the year, Turner wrote of 18,000 of uncollectible accounts. Turner's allowance for uncollectible accounts had a 15,000 balance on January 1. In the December 31 income statement, what amount should turn report as a bad debt expense? A. 23,000 B. 20,000 C. 18,000 D. 17,000

B. 20,000

William Co determined that the net realizable value (NRV) of its accounts receivable at December 31, based on the again of the receivables was 650,000. Additional information is as follows: Allowance for uncollectible accounts -- 1/1 = 60,000 Uncollectible accounts written off during the year= 36,000 Uncollectible accounts recovered during the year = 4,000 Accounts receivable at 12/31 = 700,000 What is William's bad debt expense for the year? A. 10,000 B. 22,000 C. 30,000 D. 42.000

B. 22,000 60,000 - 36,000 +4000 = 28,000 Balance should be 50,000 (700,000-650,000) 50,000 - 28,000 = 22,000

13. The trial balance before adjustment of Reba McIntyre Inc. shows the following balances. Dr. Cr. Accounts Receivable $90,000 Allowance for Doubtful Accounts 1,750 Sales Revenue (all on credit) $680,000 Instructions Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales (E7-9)

a. Bad Debt Expense 5350 Allowance for Doubtful Accts 5350 b. Bad Debt Expense 6800 Allowance for D A 6800

If a company employs the net method of recording accounts receivable from customers, then sales discounts not taken should be reported as: - an addition to sales in the income statement. - sales discounts forfeited in the cost of goods sold section of the income statement. - a deduction from accounts receivable in determining the net realizable value of accounts receivable. - an item of "other revenue" in the income statement.

an item of "other revenue" in the income statement.

The minimum cash amounts that banks often require customers to whom they lend money to maintain in checking accounts is called: cash equivalents. money market funds. bank overdrafts. compensating balances

compensating balances

On a balance sheet, what is the preferable presentation of notes receivable or accounts receivable from officers, employees, or affiliated companies? A. As trade notes and accounts receivable if they otherwise qualify as current assets B. As assets but separately from other receivables C. As offsets to capital D. By means of disclosure in the notes

B. As assets but separately from other receivables

Shore Co. provides for doubtful accounts based on 3% of credit sales. The following data are available for 2014. Credit sales during 2014 $2,428,300 Allowance for doubtful accounts 1/1/14: 18,900 Collection of accounts written off in prior years (customer credit was reestablished): 7,700 Customer accounts written off as uncollectible during 2014: 32,000 What is the balance in Allowance for Doubtful Accounts at December 31, 2014?

$ 18,900 7,700 (32,000) ($2,428,300 × 3%) 72,849 Allowance for doubtful accounts 12/31/14 = $ 67,449

An analysis and aging of Stuart Corp. accounts receivable at December 31, 2014, disclosed the following. Amounts estimated to be uncollectible : $ 184,800 Accounts receivable: 1,761,000 Allowance for doubtful accounts (per books): 129,800 What is the net realizable value of Stuart's receivables at December 31, 2014?

$1,761,000 (184,800 ) Net realizable value = $1,576,200

The required balance in Wheeler's Allowance for Doubtful Accounts is $36,750, based on an aging of its accounts receivable. The Allowance for Doubtful Accounts currently has a debit balance of $4,200. Wheeler's bad debt expense for the period is: $36,750. $32,550. $4,200. $40,950.

$40,950.

During the year, Trout Enterprises made an entry to write off a $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000. The net realizable value of accounts receivable before and after the write-off entry was: $100,000. $83,000. $99,000. $91,000

$91,000

Under IFRS, bank overdrafts are -reported as current liabilities. - netted against cash balances only if there is a second account at the same bank with a balance sufficient to cover the overdraft. - reported as an expense. - netted against cash balances

- netted against cash balances

A cash discount of 1/10, n/30 means the customer gets a: - 1% discount if they pay within 20 days. - 10% discount if they pay within 20 days. - 10% discount if they pay within 30 days. - 1% discount if they pay within 10 days.

1% discount if they pay within 10 days.

Debit Credit Net credit sales $728,200 Allowance for doubtful accounts $15,200 Accounts receivable 319,300 If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2014.

319,300 3% _________ 9,579 15,200 Bad debt expense, as adjusted $ 24,779

How much cash? Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.

925,000

When the allowance method of recognizing uncollectible accounts is used, the entry to record the write off of a specific amount... A, Decreases both accounts receivable and the allowance for uncollectible account B. Decreases accounts receivable and increases the allowance for uncollectible accounts C. Increases the allowance for uncollectible accounts and decreases net income D. Decreases both accounts receivable and net income

A, Decreases both accounts receivable and the allowance for uncollectible account

A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on... A. Aging receivables B. Direct write offs C. Gross Sale D. Credit sales minus returns and allowances

A. Aging receivables

When the allowance method of recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off... A. Increase the allowance for uncollectible accounts B. Increase net income C. Decrease the allowance for uncollectible accounts D. Have no effect on the allowances

A. Increase the allowance for uncollectible accounts

Which of the following is a method used to generate cash from accounts receivable? Assignment: Yes, Factoring: No Assignment: No, Factoring: Yes Assignment: No, Factoring: No Assignment: Yes, Factoring: Yes

Assignment: Yes, Factoring: Yes

At the end of its first year of operations, December 31, 2014, Darden Inc. reported the following information. Accounts receivable, net of allowance for doubtful accounts = $936,900 Customer accounts written off as uncollectible during 2014 = 20,800 Bad debt expense for 2014 = 86,400 What should be the balance in accounts receivable at December 31, 2014, before subtracting the allowance for doubtful accounts?

Bad debt expense for 2014 $ 86,400 Customer accounts written off as uncollectible during 2014 (20,800 ) Allowance for doubtful accounts balance 12/31/14 $ 65,600 936,900 65,600 Accounts receivable, before deducting allowance for doubtful accounts = $1,002,500

An analysis and aging of Hom Company's accounts receivable at December 31 disclosed the following: Accounts receivable 850,000 Allowance for uncollectible accounts 50,000 Amounts deemed uncollectible 64,000 The net realizable value NRV of the accounts receivables at December 31 should be A. 836,000 B. 800,000 C. 786.000 D. 736,000

C. 786.000

Classifcation cash advance received from customer $912 (not included in checking account balance)

Cash

Classification: Cash advance received from a customer, $160.

Cash

Classification: money market balance at mutual fund (has checking privileges)

Cash

Is it reported as cash? Bank deposits

Cash

Is it reported as cash? Bank drafts

Cash

Is it reported as cash? Cashier checks

Cash

Is it reported as cash? Certified checks

Cash

Is it reported as cash? Coins

Cash

Is it reported as cash? Currency

Cash

Is it reported as cash? Personal checks

Cash

Classification: Six Month Certificates of deposit (CDs), $16,000.

Cash Equivalent

Commercial paper (short term notes)

Cash equivalent

Money market funds

Cash equivalent

Treasury bills

Cash equivalent

Is it reported as cash? Bank overdrafts

Current liability not material = AP material = separate item on the face of the balance sheet or disclosed in the notes if lumped with our liabilities Part of Cash only as an OFFSET *****Only when there is another account with available cash at the same bank where the overdraft occurred.

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company. (E7-5) Instructions (a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases. 1. Sales and receivables are entered at gross selling price. 2. Sales and receivables are entered at net of cash discounts.

Gross: June 3 Accounts receivable 3,000 Sales Revenue 3,000 June 12 Cash (3,000-2%=2,940) 2,940 Sales Discounts 60 A/R 3,000 2. Sales and receivables are entered at net of cash discounts. Net: June 3 Accounts receivable 2,940 Sales Revenue 2,940 June 12 Cash 2,940 Accounts Receivable 2,940 June 19 Cash 3,000 Sales Discount forfeited 60 Accounts Receivable 2,940

Bank B, checking account overdraft, $4,000.

If there is another account with available cash at the same bank where the overdraft occurred then it reduces cash If not A/P, AND if material it is separate disclosure

Is it reported as cash? Compensating balances

In either the current asset section or the noncurrent asset section, depending on whether the borrowing arrangement is short-term or long-term

Classification: Utility deposit to the gas company, refundable, $100.

Other asset

Is it reported as cash? Postage stamps on hand

Prepaid expenses r office suppleis

Classification: NSF check, R. Roe, $400.

Receivable

Is it reported as cash? I.O.U.s

Receivables

Is it reported as cash? NSF Checks from Customers

Receivables

Is it reported as cash? Postdated checks

Receivables

Is it reported as cash? Travel advances to employees

Receivables or prepaid expenses

Classification: an overdraft in special checking account at same bank as normal checking account

Reduces cash

Cash advance to company executive, collectible upon demand, $40,000.

Special receivable

The percentage-of-receivables approach does the best job of presenting accounts receivable at their net realizable value. True or False

True

The percentage-of-sales approach of estimating bad debts does the best job of matching revenues and expenses on the income statement. True or False

True

Allowance for doubtful accounts is ______ when there is a write off of a receivable

debited