chapter 8: receivables, bad debt expense, and interest revenue

debits to interest receivable of $10

ABC Corp. received a 2-month, 8% per year, $1,500 note receivable on December 1. The adjusting entry on December will include a:

temporary account so its balance is closed (zeroed out) at the end of the accounting period

Bad debt expense is a:

1. company B: 5.6 times 2. company A: 3.4 times 3. Company C: 2.4 times

Rank companies A-C based on how favorable their receivables turnover ratio is:

bad debt expense

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to

debit notes receivable and credit cash

The entry to record the issuance of a note receivable is:

-the amounts are estimates and no one knows which particular customers will not pay -the company would lose track of which customers still owe money

When recording the adjusting entry for uncollectible using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is_____

estimated amount of this period's credit sales that customers will fail to pay

a company's bad debt expense reports the:

aging

a(n)____ of accounts receivables method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the allowance for doubtful accounts, the older receivables are assigned a higher percent than newer ones

amounts owed to a business by its customers

accounts receivable represent:

permanent account so its balance carries forward to the next accounting period

allowance for doubtful accounts is a _______

notes receivable

an adjusting entry to accrue for interest earned is often needed when a company has:

recovery

collection of a previously written-off account is called a(n):

greater; greater

given the unadjusted allowance for doubtful accounts has a $50 debit balance, the amount of receivables written off was _______ than the amount estimated in the prior period. Thus, bad debt expense will be ______in the current period than had the unadjusted balance been a credit balance

assets, net income, and stockholders' equity are understand by $1,000

if the adjusting entry to accrue interest of $1,000 on a note receivable is omitted, then:

debit to bad debt expense will be $1,000 more than the desired ending balance in the allowance for doubtful accounts

if the allowance for doubtful accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method, then it must mean that the _____

$1,000 debit

if the allowance for doubtful accounts on January 1 equals $10,000 and during the year $11,000 of specific customers' accounts were written off, then its allowance for doubtful accounts will have an unadjusted balance of:

-credit to allowance for doubtful accounts of $1,000 -debit to bad debt expense of $1,000

management estimates that 1% of the $100,000 of credit sales will be uncollectible. The allowance for doubtful accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a:

direct write off

not considered an acceptable method under GAAP

1. debit notes receivable and credit cash 2. debit interest receivable and credit interest revenue 3. debit cash and credit interest receivable 4. debit cash and credit notes receivable, interest revenue and interest receivable

place the events in proper sequence putting the first step on top for a 2-year not established in November that pays interest annually

a write-off

removing an uncollectible account and its corresponding allowance from the accounting records is called ___

-sales revenue on the income statement -accounts receivable on the balance sheet

sales on account will cause an increase in:

percentage of credit sales

simpler to apply but less accurate

-first make an end-of-period adjustment to record the estimated bad debts -later write-off specific customers balances when they are known to be uncollectible

the 2 steps required using the allowance method, are to:

-time period covered in the interest calculation -principal -annual interest rate

the 3 variables needed to calculate interest are the:

direct

the ____ write-off method is not allowed under GAAP

-assets to decrease -stockholders' equity to decrease

the adjusting entry to record the allowance for doubtful accounts causes total:

-credit to allowance for doubtful accounts -debit to bad debt expense

the adjusting entry to record the allowance for doubtful accounts includes a:

credits

the allowance for doubtful accounts is a contra-asset account. increases to the account are recorded with:

intrest revenue

the amount of interest earned

intrest receivable

the amount of interest earned but not yet collected

365 divided by the receivable turnover ratio

the days to collect ratio is computed as:

-that a higher number of days means a longer (worse) time for collection -the average number of days for sale on account to collection

the days to collect ratio provides what kind of information?

-credit to cash of $1,000 -debit to note receivable of $1,000

the entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a:

-debit to allowance for doubtful accounts -credit to accounts receivable

the entry to record the write-off of a specific customer's account requires a:

-match the cost of bad debts to the accounting period in which the related credit sales are made -report accounts receivable net of the amount the company expects to collect

the objectives when accounting for accounts receivable and bad debts are to:

notes receivable

the principle amount

many times the company sells and collects amounts on account per year

the receivables turnover ratio gives information on how:

aging of accounts receivable

uses more detailed data and is more accurate

-allowance for doubtful accounts -accumulated depreciation

what are contra-asset accounts?

total assets remain the same

what effect does the collection of a note receivable, excluding interest, have on the accounting equation?

-avoid lengthy cash collection periods -reduction of bad debts expense

what of the following are advantages of using national credit cards?

-are current assets -have the risk of not being collected

which of the following are similarities between a 6-month note receivable and an account receivable? They both ____