Principle of Financial Accounting- Chapter 5

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be

7% of accounts receivable + debit allowance for uncollectible accounts

A company will debit ___________ when recording a credit sale.

Accounts Receivavable

Account(s) with a normal credit balance include

Allowance for uncollectible accounts, sales revenue

How are trade discounts recognized?

By recording a sale at a discounted price

Kelly's Jewelry has the following transactions during the year; total jewelry sales = $560,000; sales discounts = $10,500; sales returns = $31,000; sales allowances = $11,000. In addition, at the end of the year the company estimates the following transactions associated with jewelry sales in the current year will occur next year; sales discounts = $1,050; sales returns = $3,720; sales allowances = $1,470. Compute net sales.

Total sales: 560,000 Less: Sales Discount: (11,550) Less: Sales return: (34,720) Less: Sales allowances: (12,470) Net sales: 501,260

The allowance method is required by GAAP for financial reporting purposes.

True

Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts

decrease total assets and decrease net income

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current year's income statement?

future uncollectible accounts - credit current year balance of the allowance

A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit

sales discount for $24

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of

(8% of 100,000)/4 = 2,000

At the beginning of the year, Mitchum Enterprises allows for estimated uncollectible accounts of $19,800. By the end of the year, actual bad debts total $23,000. 1. Record the write-off to uncollectible accounts. 2. What is the balance of Allowance for Uncollectible Accounts?

1. Allowance for Uncollectible Accounts: 23,000 -D Accounts Receivable: 23,000 -C 2. 3,200 Debit

A company makes a credit sale for $500. Future collection from the customer is probable. The company will not record revenue from the transaction until it collects cash from the customer.

False

Trade discounts represent

a reduction in listed price of goods or services

The effect of writing off a specific account receivable is

a reduction in the allowance for uncollectible accounts

A sales discount is recorded by the seller as a(n)

contra revenue

Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself.

contra revenue

On May 1, Arden Wholesale sells $800 worth of goods on account to an out-of-state customer. Upon receiving the order on May 7, the customer notifies Arden that approximately 5% of the goods arrived damaged. As a result, Arden reduces the amount owed by the customer by $50. The journal entry by Arden Wholesale on May 7 will include a

credit to Accounts receivable

According to the allowance method, writing off an account receivable will include a

credit to accounts receivable

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 24. The receipt of payment will include a

credit to accounts receivable for $1000

On September 1, Year 1, a company collects a $5,000 six-month, five percent promissory note. The entry to record the collection at maturity date will include a

credit to interest revenue for $125 (($5,000 × 5% × [6/12]).)

On January 1, Year 1, Alpha Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. How much interest will be collected at the maturity date of the note?

$225 ($10,000 x 9% × [3/12] = $225.)

Barnes Books allows for possible bad debts. On May 7, Barnes writes off a customer account of $12,600. On September 9, the customer unexpectedly pays the $12,600 balance. Record the cash collection on September 9. 1. Record the portion of uncollectible previously written off. 2.Record the cash collection on September 9.

1. Accounts Receivable: 12,600 -D Allowance for Uncollectible Accounts: 12,600 -C 2. Cash: 12,600 -D Accounts Receivable: 12,600 -C

The Giles Agency offers a 8% trade discount when providing advertising services of $1,000 or more to its customers. Audrey's Antiques decides to purchase advertising services of $2,400 (not including the trade discount), while Michael's Motors purchases only $590 of advertising. Both services are provided on account. Record both transactions for The Giles Agency, accounting for any trade discounts.

1. Accounts Receivable: 2,208 -D Service Revenue : 2,208 - C 2. Accounts Receivable: 590 -D Service Revenue: 590 -C

On October 1, 2021, Oberley Corporation loans one of its employees $20,000 and accepts a 12-month, 8% note receivable.Calculate the amount of interest revenue Oberley will recognize in 2021 and 2022.

2021- (20,000 X 3/12 X 0.0.8%) = 400; 2022- (20,000 X 9/12 X 0.08%) = 1,200

The entry to record the estimate for uncollectible accounts includes

A debit to bad debt expense

The amount of cash owed to the company by its customers from the sale of products or services on account is known as

Accounts receivable

When a company provides services on account, which of the following accounts is debited?

Accounts receivable

Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is

Accounts receivable - allowance for uncollectible accounts

At the end of the year, Mercy Cosmetics' balance of Allowance for Uncollectible Accounts is $480 (credit) before adjustment. The balance of Accounts Receivable is $19,000. The company estimates that 15% of accounts will not be collected over the next year.What adjustment would Mercy Cosmetics record for Allowance for Uncollectible Accounts?

Bad Debt Expense: 2,370 -D Allowance for uncollectible accounts: 2,370 -C

At the end of the first year of operations, Mayberry Advertising had accounts receivable of $21,900. Management of the company estimates that 11% of the accounts will not be collected. What adjustment would Mayberry Advertising record to establish Allowance for Uncollectible Accounts?

Bad Debt Expense: 2,409 - D Allowance for Uncollectible Accounts: 2,409 -C

At the end of the year, Mercy Cosmetics' balance of Allowance for Uncollectible Accounts is $800 (debit) before adjustment. The balance of Accounts Receivable is $27,000. The company estimates that 13% of accounts will not be collected over the next year.What is the adjustment Mercy Cosmetics would record for Allowance for Uncollectible Accounts?

Bad Debt Expense: 4,310 -D Allowance for uncollectible accounts: 4,310 -C

Beta Corporation wrote off $100,000 due from a specific client in March. However, this client was able to make a partial payment of $15,000 in June. Recording this cash collection will involve all of the following accounts except

Bad debt expense

Revenue =

Service rev - sales discount - sales allowances

Credit sales involve benefits and costs. A benefit of selling on credit is that the seller makes it more convenient for customers to purchase goods and services. A cost of selling on credit is that there is a delay in collecting cash from customers.

True

The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year.

True

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 6. The receipt of payment will include a

debit to cash for $980

On January 1, Year 1, Boyd Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. To record acceptance of the note, the company will record a

debit to notes receivable for $10,000

On November 5, Phelps Outerwear sells a coat on account to a customer for $200. On November 15, the customer decides to return the coat to the retailer. The journal entry on November 15 will include a

debit to sales return

Delta Company performed $20,000 of services on account and recorded the amount due as a typical account receivable. Over time, it became apparent that the customer would not be able to pay quickly, so Delta required the customer to sign a six-month, 11 percent promissory note on February 1, Year 2. The company then reclassified the existing account receivable as a note receivable. Which of the following will result from this action?

no impact on accounting equation