CHAPTER 7 ACCOUNTING

Conroy Company uses the allowance method to account for bad debts. During the year, Conroy determined that a balance of $200 from Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

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.

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 Blank______account:

Accounts Receivable

On September 1, Horn Co. accepted a 60-day, 5% note in the amount of $3,000 from a customer. On the due date of the note, the customer dishonors the note and fails to pay. The journal entry that Horn would make on the due date would include debit to:

Accounts Receivable for $3,025

Simon Co. sold $500 of merchandise on their own store credit cards. The entry to record this sales transaction on the date of the sale would include a debit to

Accounts Receivable for $500

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

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

April 16

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.

(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

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the account before recording a debit to the Cash account.

Blank 1: Bad Blank 2: Debts or debt Blank 3: Expense or expenses

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

Blank 1: contra

The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the principle.

Blank 1: expense or matching Blank 2: recognition

Companies sometimes convert receivables to cash before they are due. When a company sells its receivables, the buyer is called a (pledgor/factor). When a company uses receivables as security for a loan, it is called (pledging/factoring).

Blank 1: factor Blank 2: pledging or pledge

The (maker/payee) 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

To compute interest due on a maturity date, multiply (principal/note) times (interest/dividends) times time expressed in fraction of year.

Blank 1: principal or principle Blank 2: interest rate or interest

T. Hillcrest Co. sold $500 of merchandise on a bank credit card with a 5% fee. The entry to record this sales transaction would include debit(s) to

Cash for $475 and to Credit Card Expense for $25

At year-end, Avis Company estimates that $2,000 of its accounts receivable balance is uncollectible. Avis uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a credit to:

Correct Answer Allowance for Doubtful Accounts

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

The (aging/percent) of accounts receivable method uses several percentages, based on how long an account is past due, to estimate the allowance.

aging

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.)

credit to Bad Debts Expense. debit to Cash.

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.)

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

zino Company determines that a customer balance of $200,from Hollis Co. is uncollectible. Zino uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a: Multiple choice question.

debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

On December 31, DVS Company estimates that $2,500 of its accounts receivable balance is uncollectible. DVS uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a: (Check all that apply.)

debit to Bad Debts Expense for $2,500. credit to Allowance for Doubtful Accounts for $2,500.

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

When a note's maker does not pay at maturity, the note is considered (honored/dishonored)

dishonored

The direct write-off method records bad debts expense only when a specific account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the Blank______ principle

expense recognition

The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

false

When a company's receivables are used as security for a loan, the company is said to have Blank______ its receivables.

pledged

To compute interest due on a maturity date, use the formula:

principal x interest rate x time expressed in fraction of y

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called:

realizable value

When an account previously written off is later collected, two journal entries are required. The first journal entry is to Blank______ the account, and the second journal entry is to record Blank______ of payment. Multiple choice question.

reinstate, receipt

Explain what a control account is by completing the following sentence. A control account appears in the general ledger and is supported by information in a separate ledger.

subsidiary

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

total uncollectible accounts

A note is honored when it is paid in ful

true

The direct write-off 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.

true

The direct write-off 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. True false question.

true

The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them

true

A company estimates that $1,000 of its accounts receivable is uncollectible at the end of the period and will make the following adjusting entry: (Check all that apply.)

Debit to Bad Debts Expense for $1,000 Credit to Allowance for Doubtful Accounts

accounts receivable ledger

is a supplementary record created to maintain a separate account for each customer

The Blank______ constraint is permitted under GAAP when its results approximate those under the allowance method.

materiality

The Blank______ method of estimating allowance for doubtful accounts is based on the idea that a given percent of a company's credit sales for the period are uncollectible.

percentage of sales

To record a sale on account, the company should debit:

Accounts Receivable.

To record a customer's check in full payment for a sale that was made the prior month, the company should debit the Blank______ account.

cash

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

sales 6,000

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20, the due date?

20 dollas

Acel Co. uses the allowance method to account for bad debts. In January, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 from CTR. The entries to record the receipt of cash on October 21 would include a debit to: (Check all that apply.)

Accounts Receivable. Cash.

The principal and interest of a note are due on its maturity date. If the maker of the note pays the note in full, the maker is said to have (honored/dishonored) the note.

honored

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

$4400

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 records estimated bad debts expense in the period when the related sales are recorded.

allowance

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.)

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

Flash Co. uses the allowance method to account for bad debts. At the end of the year, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$7500

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

50 dollas

review the statements below and choose the one that correctly describes a control account.

A control account appears in the general ledger and is supported by a subsidiary ledger.

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

January 19

Companies allow customers to pay for products using third-party credit cards because:

a variety of payment options typically increase sales volume. the seller does not have to evaluate customer credit. cash is received from the credit card company faster than from a credit customer. the seller avoids the risk of customer non-payment.

The Blank______ method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts—mainly, the relationship between accounts receivable and the allowance account.

aging of accounts receivable

In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit) to Accounts Receivable.

credit

Tunes Company determines that a customer balance of $250 from Able Co. is uncollectible. Tunes uses the allowance method to account for bad debts. The entry to write off Able's uncollectible balance will include a (debit/credit) to the Allowance for Doubtful Accounts

debit