Dynamic Study Chapter 8

Ballman Company has the following information regarding receivables at the end of the current year: 1 - 30 days past due: $1,000 31 - 60 days past due: $200 Over 60 days past due: $100 Using the aging-of-receivable method, Ballman has determined the following percentages for expected uncollectiblity: 1 - 30 days past due: 1% 31 - 60 days past due: 5% Over 60 days past due: 20% What is the amount that should be in the Allowance for Bad Debts at the end of the year?

$40 $1,000 x 0.01 = $10 $200 x 0.05 = $10 $100 x .2 = $20 -------------------- total = $40

At year end, Smith Corporation has Cash of $12,000, current Accounts Receivable of $24,000, Merchandise Inventory of $3,000, and Prepaid Expenses totaling $5,000. Liabilities of $20,000 must be paid next year. What is the acid-test ratio?

1.80 (cash + acct rec)/ current liabilities ($12,000 + $24,000)/$20,000 = 1.80

The accounts receivable turnover for the year is 9.5. Net sales for the period are $100,000. What is number of days' sales are in receivable?

38.4 days (365 days in a year/ acct rec turnover) 365/ 9.5 = 38.4

Ballman Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the year, Allowance for Bad Debts had a credit balance of $2,000. During the year, Ballman wrote off uncollectible receivables of $4,200. Ballman also recorded an adjusting entry for $4,000 of bad debt for the current year. What is Ballman's year-end balance in Allowance for Bad Debts?

$1,800 (Beg. bal - debit allowance + credit to allowance) $2,000 - $4,200 + $4,000 = $1,800

The Accounts Receivable balance is $20,000 and the Allowance for Bad Debts has a credit balance of $4,000 at the end of the year. What is the net realizable value of Accounts Receivable at the end of the year?

$16,000 ($20,000 - $4,000 = $16,000)

Andrews Company accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 9 months at 5% interest. At the end of the 9 months, the customer does not pay, so it becomes a dishonored note receivable. What is the journal entry for the dishonored note?

Debit: A/R $2,075 Credits: Notes Pay $2,000 Interest Rev $75 ($2,000 X0.05 X 9)/12 = $75

Basic Learning provides $6,000 in services to customer Thompson on account. The revenue is recorded (ignore Cost of Goods Sold) as follows:

Debit: A/R - Thompson $6,000 Credit: Sales Revenue $6,000

Ballman Corporation determines that it cannot collect a total of $300 from a customer. Using the allowance method, the journal entry to write off the amount would be:

Debit: Allowance for Bad Debts $300 Credit: A/R $300

Caviler Corporation determines that it cannot collect a total of $500 from a customer. Using the allowance method, the journal entry to write off the amount would be:

Debit: Allowance for Bad Debts $500 Credit: A/R $500

Assume Travis Company determines it will not be able to collect $1,500 from Customer Tammy Hilger for sale of merchandise on account. The journal entry to write off the amount using the direct write off method would be:

Debit: Bad Debts Exp $1,500 Credit: A/R - Tammy Hilger $1,500

Rose Company uses the allowance method and estimates that 2% of its $10,000 Accounts Receivable are uncollectible. The entry to record this adjustment would be:

Debit: Bad Debts Exp $200 Credit: Allowance for Bad Debts $200

Tango Company uses the allowance method and estimates that 3% of its $12,000 Accounts Receivable are uncollectable. The entry to record this adjustment would be:

Debit: Bad Debts Exp $360 Credit: Allowance for Bad Debts $360

Assume Jones Company determines it will not be able to collect $500 from Customer Joe Smith for sale of merchandise on account. The journal entry to write off the amount using the direct write off method would be:

Debit: Bad Debts Exp $500 Credit: A/R - Joe Smith $500

Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 45 days at 5% interest. At the end of 45 days, the customer pays the balance on Notes Payable and interest. What is the journal entry for receiving the payment of the note and interest?

Debit: Cash $2,012.50 Credits: Interest Rev $12.50 Notes Pay. $2,000.00 ------------------------------------- $2,000 x 0.05 x 45/ 360 = $12.50

Jones Company writes off $500 of the Accounts Receivable owed by Joe Smith. Joe Smith did end up paying the $500, so Jones Company reversed the write off. Using the allowance method, what is the journal entry to show receiving the cash from Joe Smith after the write off on his account is reversed?

Debit: Cash $500 Credit: A/R $500

Digital Office Elite Company writes off $800 of the Accounts Receivable owed by Pat Thompson. Pat Thompson did end up paying the $800, so Digital Office Elite Company reversed the write off. Using the allowance method, what is the journal entry to show receiving the cash from Pat Thompson after the write off on his account is reversed?

Debit: Cash $800 Credit: A/R $800

Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note for 60 days at 5% interest. What is the journal entry to record the acceptance of the notes receivable?

Debit: Notes Receivable $2,000 Credit: A/R $2,000

Pledging of receivables is when ________.

a business uses its receivables as security for a loan

When a business factors its receivables, it sells its receivables to _________.

a finance company or bank (factor)

Blue Company's net credit sales for the year is $100,000. The beginning Accounts Receivable balance is $30,000 and the ending Accounts Receivable balance is $40,000. What is the accounts receivable turnover?

2.86 times (net credit sales/ average acct. rec.) $100,000/(($30,000 + $40,000)/2) = 2.86

Using the direct write off method, a $3,000 balance of the Accounts Receivable was written off. Two months later, the customer unexpectedly pays the $3,000 balance. The journal entry to reverse the previous write off would be:

Debit: A/R $3,000 Credit: Bad Debts Exp $3,000

After writing off a $300 account balance for Ballman Company using the allowance method, Ballman Company sends in the payment. The journal entry to reverse the write off using the allowance method is:

Debit: A/R $300 Credit: Allowance fir Bad Debts $300

Using the direct write off method, a $6,000 balance of the Accounts Receivable was written off. Three months later, the customer unexpectedly pays the $6,000 balance. The journal entry to reverse the previous write off would be:

Debit: A/R $6,000 Credit: Bad Debts Exp $6,000

After writing off a $600 account balance for Filmore Company using the allowance method, Filmore Company sends in the payment. The journal entry to reverse the write off using the allowance method is:

Debit: A/R $600 Credit: Allowance for Bad Debts $600

Which method of accounting for uncollectibles allows for a more accurate balance for assets on the Balance Sheet?

Allowance Method - the allowance for bad debts contra account reduces Net Accounts Receivable to what you actually expect to collesct

At December 31 of the current year, Cart Corporation has a $16,000 Notes Receivable from a customer. Interest of 5% has accrued for 9 months on the note. What will be reported on the Balance Sheet?

Interest receivable of $600 (principal x interest x time) ($6,000 X 0.05 X 9)/12 = $600