AC Chapter 8

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. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

The allowance method requires that ______. (Check all that apply.)

-Bad Debt Expense be recorded in the same period as the related credit sales -Allowance for Doubtful Accounts be netted against Accounts Receivable

Sales on account ______. (Check all that apply.)

-increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement -increase assets and stockholders' equity

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is ______. (Select all that apply.)

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

Net sales revenue is $720,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.

12.0 times

The days to collect ratio is computed as ______

365 divided by the Receivable Turnover Ratio

Which of the following statements is true?

Allowance for Doubtful Accounts is a permanent account.

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a debit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

What would be the effect of forgetting to record the adjusting entry for estimated bad debts?

Assets and stockholders' equity would be overstated.

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ______. (Check all that apply.)

Bad Debt Expense of $2,000 Allowance for Doubtful Accounts of $2,050 credit balance

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.)

Sales Revenue Depreciation Expense Bad Debt Expense

A company is more profitable if their receivables turnover ratio is higher?

True

True or false: GAAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.

True

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record ______.

an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generated in December

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 ______.

bad debt expense

ADA

contra asset credit balance

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

debit to Bad Debt Expense of $900 credit to Allowance for Doubtful Accounts of $900

Bad Debt Expense ______. (Check all that apply.)

is a cost of extending credit to customers is an estimate

The receivables turnover ratio gives information on how ______.

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

direct write off

not considered an acceptable method under GAAP

When accounting for accounts receivable, a primary objective is to ______.

not overstate assets and stockholders' equity by the estimated amount of bad debt

Which of the following are advantages of using national credit cards? (Check all that apply.)

reduction of bad debts expense avoid lengthy cash collection periods

The fees charged by major credit card companies are included in ______.

selling expenses on the income statement

percentage of credit sales

simpler to apply but less accurate

An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______.

the same period the related credit sales are recorded

aging of accounts receivable

uses more detailed data and is more accurate

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) ______.

write-off of a specific customer's account

Why is Allowance for Doubtful Accounts credited, instead of Accounts Receivable, when recording the adjusting entry for bad debts?

Accounts Receivable consists of many customer accounts and thus cannot be credited unless it is known which specific customer is not going to pay.