Accounting for Receivables – Test Bank Chapter 9 | 24th Ed

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Fundamental Accounting Principles, 24e (Wild)

Chapter 9 Accounting for Receivables

1) A receivable is an amount due from another party.

2) Credit sales are recorded by crediting Accounts Receivable.

3) As long as a company accurately records total credit sales information, it is not necessary to have separate accounts for specific customers.

4) If a customer owes interest on accounts receivable, Interest Receivable is debited and Accounts Receivable is credited.

5) If a sale is made with a bank credit card, the seller debits Cash and credits Sales for the same amount.

6) An Installment Accounts Receivable is classified as a non-current asset if the installment period is six months.

7) Companies can report credit card expense as a reduction in net sales or as a selling expense.

8) BizCom's customer, Redding, paid off an $8,300 balance on its account receivable. BizCom should record the transaction as a debit to Accounts Receivable—Redding and a credit to Cash.

9) The maturity date of a note refers to the date the note must be repaid.

10) A promissory note is a written promise to pay a specified amount of money either on demand or at a stated future date.

11) The formula for computing interest on a note is: Principal of the note × Annual interest rate × Time expressed in fraction of year.

12) The person that borrows money and signs a promissory note is called the maker.

13) A company borrowed $10,000 by signing a six-month promissory note at 5% interest. The amount of interest to be paid at maturity is $25.

14) A company borrowed $16,000 by signing a 4-month promissory note at 12%. The amount of interest to be paid at maturity is $640.

15) Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.

16) Federal laws prohibit the selling of accounts receivable to factors.

17) The process of using accounts receivable as security for a loan is known as pledging accounts receivable.

18) Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

19) A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $30,000, a debit to Factoring Fee Expense of $600, and credit to Accounts Receivable of $30,600.

20) The quality of receivables refers to the likelihood of collection without loss.

21) The accounts receivable turnover indicates how often accounts receivable are collected during the period.

22) A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

23) The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

24) A company had net sales of $550,000 and an average accounts receivable of $110,000. Its accounts receivable turnover equals 5.0.

25) A Company had net sales of $23,000, and its average account receivables were $5,700. Its accounts receivable turnover is 0.24.

26) 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.

27) The allowance method estimates bad debts expense at the end of each accounting period.

28) Companies follow both the expense recognition principle and the materiality constraint when applying the direct write-off method.

29) The use of the direct write-off method is allowed under the materiality constraint.

30) The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills.

31) Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method.

32) No attempt is made to estimate bad debts expense under the allowance method of accounting for uncollectible accounts receivable.

33) The expense recognition principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

34) When using the allowance method of accounting for uncollectible accounts, the entry to record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

35) After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

36) When using the allowance method of accounting for uncollectible accounts, the entry to write off Jeannie's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable—Jeannie.

37) The realizable value refers to the accounts receivable amount expected to be received.

38) Allowance for Doubtful Accounts is a contra asset; its balance is added to Accounts receivable.

39) The allowance method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

40) When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense.

41) The aging of accounts receivable method involves classifying each account receivable by how long it is past its due date and estimating the percent of each uncollectible class.

42) Installment accounts receivable is another name for aging of accounts receivable.

43) The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.

44) The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible.

45) The percent of sales method for estimating bad debts uses only income statement account balances to estimate bad debts.

46) The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the higher the likelihood of collection.

47) A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.

48) A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

49) A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible. The estimated amount of bad debts expense is $3,500.

50) A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible. The unadjusted balance in Allowance for Doubtful Accounts is a $300 credit. The estimated amount of bad debts expense is $3,200

51) The percent of sales method of estimating bad debts focuses more on the realizable value of accounts receivable than on expense recognition.

52) The period of a note is the time from the note's (contract) date to its maturity date.

53) Notes receivable are classified as current liabilities regardless of the time to maturity.

54) A company received a $15,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable.

55) It is not advisable to accept a note receivable in exchange for an overdue account receivable.

56) A note that the maker does not pay at maturity is called a dishonored note.

57) A maker who dishonors a note is one pays at maturity.

58) When a note receivable is dishonored, it reverts to an account receivable.

59) The notes receivable account of a business should include both the notes that have not yet matured and the dishonored notes.

60) The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not yet matured in the Notes Receivable account.

61) Accrued interest on outstanding notes receivable should be recorded at the end of each accounting period.

62) When posting a dishonored note to a customer's account, an explanation is included so as not to misinterpret the debit as a sale on account.

63) Dishonoring a note means the maker no longer has to pay.

64) Separate accounts receivable information for each customer is important because it reveals all of the following except:

A) How much each customer has purchased on credit.

B) How much each customer has paid.

C) How much each customer still owes.

D) The basis for sending bills to customers.

E) When the customer intends to pay outstanding balances.

65) A credit sale of $5,275 to a customer would result in which of the following?

A) A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.

B) A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.

C) A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable subsidiary ledger.

D) A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.

E) A credit to Sales and a credit to the customer's account in the accounts receivable subsidiary ledger.

66) Sellers allow customers to use bank (or third-party) credit cards for all of the following reasons except:

A) To be able to charge more due to fees and interest.

B) To avoid the risk of customers not paying.

C) To speed up receipt of cash from the credit sale.

D) To increase total sales.

E) To avoid having to decide who gets credit and how much.

67) Which of the following is not true regarding a bank (or third party) credit card expense?

A) Credit card expense may be classified as a "discount" deducted from sales to get net sales.

B) Credit card expense may be classified as a selling expense.

C) Credit card expense may be classified as an administrative expense.

D) Credit card expense is not recorded by the seller.

E) Credit card expense is a fee the seller pays for services provided by the card company.

68) A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

A) A cash equivalent.

B) An account receivable.

C) A note receivable.

D) A short-term investment.

E) A note payable.

69) The person who signs a note receivable and promises to pay the principal and interest is the:

A) Maker.

B) Payee.

C) Holder.

D) Receiver.

E) Owner.

70) A company pledges their receivables so they may

A) Collect a pledge fee.

B) Borrow money.

C) Charge a factoring fee.

D) Increase sales.

E) Recognize a sale.

71) A promissory note:

A) Is a short-term investment for the maker.

B) Is a written promise to pay a specified amount of money at a certain date.

C) Is a liability to the payee.

D) Is another name for an installment receivable.

E) Cannot be used in payment of an account receivable.

72) The maturity date of a note receivable:

A) Is the day of the credit sale.

B) Is the day the note was signed.

C) Is the day the note is due to be repaid.

D) Is the date of the first payment.

E) Is the last day of the month.

73) The interest accrued on $7,500 at 6% for 90 days is: (Use 360 days a year.)

A) $450.00.

B) $37.50.

C) $112.50.

D) $11.25.

E) $1,800.00.

74) A 90-day note issued on April 10 matures on:

A) July 9.

B) July 10.

C) July 11.

D) July 12.

E) July 13.

75) A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is: (Use 360 days a year.)

A) $50.00.

B) $150.00.

C) $75.00.

D) $37.50.

E) $87.50.

76) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is: (Use 360 days a year.)

A) $900

B) $75

C) $450

D) $300

E) $1,800

77) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total to be paid at maturity of the note is: (Use 360 days a year.)

A) $10,450

B) $10,900

C) $10,075

D) $11,800

E) $10,300

78) A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a:

A) Payer.

B) Pledger.

C) Factor.

D) Payee.

E) Pledgee.

79) Factoring receivables is beneficial to a seller for all of the following reasons except:

A) Allows firms to receive cash earlier.

B) Passes ownership of the receivables to the factor.

C) There are no fees for factoring.

D) Seller avoids the cost of billing and accounting for receivables.

E) May pass the risk of bad debts to the factor.

80) A company factored $45,000 of its accounts receivable and was charged a 4% factoring fee. The journal entry to record this transaction would include a:

A) Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $46,800.

B) Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.

C) Debit to Cash of $43,200, a debit to Factoring Fee Expense of $1,800, and a credit to Accounts Receivable of $45,000.

D) Debit to Cash of $46,800 and a credit to Accounts Receivable of $46,800.

E) Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

81) The quality of receivables refers to:

A) The creditworthiness of sellers.

B) The method of collection.

C) The likelihood of collection without loss.

D) Sales turnover.

E) The interest rate.

82) The account receivable turnover measures:

A) How long it takes to sell accounts receivable to a factor.

B) How often, on average, receivables are received and collected during the period.

C) The relation of cash sales to credit sales.

D) How long it takes to sell merchandise inventory.

E) All of the options are correct.

83) The accounts receivable turnover is calculated by:

A) Dividing net sales by average accounts receivable.

B) Dividing net sales by average accounts receivable and multiplying by 365.

C) Dividing average accounts receivable by net sales.

D) Dividing average accounts receivable by net sales and multiplying by 365.

E) Dividing net income by average accounts receivable.

84) A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period?

A) 0.33

B) 5.00

C) 20.0

D) 73.0

E) 3.0

85) Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is:

A) 37.8.

B) 9.7.

C) 68.3.

D) 7.1.

E) 51.7.

86) Axle Co.'s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Betterman's turnover was 9.3 for this year and 9.3 for last year. These results imply that:

A) Betterman has the better turnover for both years.

B) Axle has the better turnover for both years.

C) Betterman's turnover is improving.

D) Axle's credit policies are too loose.

E) Betterman is collecting its receivables more quickly than Axle in both years.

87) A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable of $75,000. Its accounts receivable turnover equals:

A) 0.13

B) 0.80

C) 7.75

D) 8.00

E) 10.00

88) A company had total sales of $600,000, net sales of $550,000, and an average accounts receivable of $90,000. Its accounts receivable turnover equals:

A) 6.1

B) 63.0

C) 54.8

D) 1.1

E) 6.3

89) The expense recognition principle, as applied to bad debts, requires:

A) That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.

B) The use of the direct write-off method for bad debts.

C) The use of the allowance method of accounting for bad debts.

D) That bad debts be disclosed in the financial statements.

E) That bad debts not be written off.

90) The materiality constraint, as applied to bad debts:

A) Permits the use of the direct write-off method when bad debts expenses are relatively small.

B) Requires use of the allowance method for bad debts.

C) Requires use of the direct write-off method.

D) Requires that bad debts not be written off.

E) Requires that expenses be reported in the same period as the sales they helped produce.

91) If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

A) An increase in the expenses of the current period.

B) An increase in current assets.

C) A reduction in equity.

D) No effect on the expenses of the current period.

E) A reduction in current liabilities.

92) On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

A) Decrease in net income; no effect on total assets.

B) No effect on net income; no effect on total assets.

C) Decrease in net income; decrease in total assets.

D) Increase in net income; no effect on total assets.

E) No effect on net income; decrease in total assets.

93) On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the direct write-off method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

A) Decrease in net income; no effect on total assets.

B)  No effect on net income; no effect on total assets.

C) Decrease in net income; decrease in total assets.

D) Increase in net income; no effect on total assets.

E) No effect on net income; decrease in total assets.

94) Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

A)

B)

C)

D)

E)

95) Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

A)

B)

C)

D)

E)

96) Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A)

B)

C)

D)

E)

97) Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A)

B)

C)

D)

E)

98) The allowance method that assumes a given percent of a company's credit sales for the period is uncollectible is:

A) The percent of sales method.

B) The percent of accounts receivable method.

C) The aging of accounts receivable method.

D) Direct write-off method.

E) Factoring method.

99) A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

A) Direct write-off method.

B) Aging of accounts receivable method.

C) Percentage of sales method.

D) Aging of investments method.

E) Percent of accounts receivable method.

100) Which of the following is an accounting method that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

A) Allowance method of accounting for bad debts.

B) Aging of notes receivable method.

C) Adjustment method for uncollectible debts.

D) Direct write-off method of accounting for bad debts.

E) Cash basis method of accounting for bad debts.

101) On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

A) $5,715.

B) $6,636.

C) $4,794.

D) $5,770.

E) $5,660.

102) At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A)

B)

C)

D)

E)

103) At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A)

B)

C)

D)

E)

104) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

A) $1,275

B) $1,775

C) $4,500

D) $4,800

E) $5,500

105) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

A) $1,275

B) $1,775

C) $1,500

D) $1,080

E) $2,500

106) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates 0.6% of net credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A) Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.

B) Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.

C) Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.

D) Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.

E) Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300.

107) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A) $3,600

B) $3,568

C) $3,632

D) $2,800

E) $4,400

108) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

A) $2,800

B) $3,568

C) $3,632

D) $3,600

E) $4,400

109) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the transaction should be:

A) Debit Notes Receivable for $25,000; credit Cash $25,000.

B) Debit Accounts Receivable $25,000; credit Notes Receivable $25,000.

C) Debit Cash $25,000; credit Notes Receivable for $25,000.

D) Debit Notes Payable $25,000; credit Accounts Payable $25,000.

E) Debit Notes Receivable $25,000; credit Sales $25,000.

110) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is: (Use 360 days a year.)

A) $1,750.

B) $145.83.

C) $437.50.

D) $19.44.

E) $875.00.

111) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

A) Debit Cash for $25,000; credit Notes Receivable $25,000.

B) Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.

C) Debit Cash $25,437.50; credit Notes Receivable for $25,437.50.

D) Debit Notes Payable $25,000; Debit Interest Expense $1,750; credit Cash $26,750.

E) Debit Cash $26,750; credit Interest Revenue $1,750, credit Notes Receivable $25,000.

112) Duerr Company makes a $60,000, 60-day, 12% cash loan to Ryan Co. The note and interest to be collected at maturity is: (Use 360 days a year.)

A) $60,000.

B) $1,200.

C) $61,200.

D) $58,800.

E) $67,200.

113) Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 1. Lemming's end-of-period adjusting entry on December 31 should be:

A) Debit Cash for $250; credit Notes Receivable $250.

B) Debit Interest Revenue $500; credit Notes Receivable $500.

C) Debit Interest Receivable $250; credit Interest Revenue $250.

D) Debit Interest Receivable $500; credit Interest Revenue $500.

E) Debit Notes Receivable $500; credit Interest Revenue $500.

114) The total amount of the note and interest due on the maturity date of a $6,000, 60-day 4%, note receivable is: (Use 360 days a year.)

A) $6,000.

B) $6,240.

C) $5,760.

D) $6,040.

E) $5,960.

115) Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the sales transaction is:

A) Debit Accounts Receivable $4,000; credit Sales $4,000

B) Debit Notes Receivable $4,000; credit Sales $4,000

C) Debit Accounts Receivable $4,060; credit Sales $4,060

D) Debit Notes Receivable $4,060; credit Sales $4,060

E) Debit Notes Receivable $4,000; debit Interest Receivable $60; credit Sales $4,060

116) Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

A) Debit Cash $4,060; credit Notes Receivable $4,060

B) Debit Notes Receivable $4,000; credit Cash $4,000

C) Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,060

D) Debit Notes Receivable $4,060; credit Sales $4,060

E) Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

117) Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the sales transaction is:

A) Debit Accounts Receivable $7,800; credit Sales $7,800

B) Debit Accounts Receivable $7,904; credit Sales $7,904

C) Debit Notes Receivable $7,800; credit Sales $7,800

D) Debit Notes Receivable $7,904; credit Sales $7,904

E) Debit Notes Receivable $7,800; debit Interest Receivable $104; credit Sales $7,904

118) Jax Recording Studio purchased $7,800 in electronic components from Music World. Jax signed a 60-day, 8% promissory note for $7,800. Music World's journal entry to record the collection on the maturity date is:

A) Debit Cash $7,800; credit Accounts Receivable $7,800

B) Debit Accounts Receivable $7,904; credit Notes Receivable $7,800; credit Interest Receivable $104

C) Debit Notes Receivable $8,008; credit Cash $7,904; credit Interest Revenue $104

D) Debit Cash $7,904; credit Notes Receivable $7,800; credit Interest Revenue $104

E) Debit Cash $7,904; credit Notes Receivable $7,904

119) Honoring a note receivable indicates that the maker has:

A) Signed.

B) Paid in full.

C) Guaranteed.

D) Notarized.

E) Cosigned.

120) Failure by a promissory notes' maker to pay the amount due at maturity is known as:

A) Protesting a note.

B) Closing a note.

C) Dishonoring a note.

D) Discounting a note.

E) Depreciating a note.

121) Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.) (Use 360 days a year.)

A) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.

B) Debit Cash $4,920; credit Notes Receivable $4,920.

C) Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit Notes Receivable $4,800.

D) Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.

E) Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.

122) Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on December 31, to record the accrued interest on the note?

A) Debit Cash $20; credit Notes Receivable $20.

B) Debit Cash $100; credit Notes Receivable $100.

C) Debit Interest Receivable $20; credit Interest Revenue $20.

D) Debit Interest Receivable $100; credit Interest Revenue $100.

E) Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.

123) Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)

A) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.

B) Debit Cash $4,920; credit Notes Receivable $4,920.

C) Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit Notes Receivable $4,800.

D) Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.

E) Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit Notes Receivable $4,800.

124) Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due on the note? (Use 360 days a year.)

A) $130

B) $7,800

C) $7,930

D) $8,050

E) $8,130

125) Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note? (Use 360 days a year.)

A) Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable $8,060.

B) Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.

C) Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.

D) Debit Accounts Receivable—Valley Spa $7,800; credit Notes Receivable $7,800.

E) Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800.

126) Which of the following is not true about the Allowance for Doubtful Accounts?

A) It is a contra asset account.

B) It is used instead of reducing accounts receivable directly.

C) It is debited when uncollectible accounts are written off.

D) It is a liability account.

E) It is credited when bad debts expense is estimated and recorded.

127) Jervis sells $75,000 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 5% factoring fee. What entry should Jervis make to record the transaction?

A) Debit Cash $71,250; debit Factoring Fee Expense $3,750; credit Accounts Receivable $75,000

B) Debit Accounts Receivable $71,250; debit Factoring Fee Expense $3,750; credit Cash $75,000

C) Debit Cash $75,000; credit Factoring Fee Expense $3,750; credit Accounts Receivable $75,000

D) Debit Cash $71,250; credit Accounts Receivable $71,250

E) Debit Accounts Receivable $75,000; credit Factoring Fee Expense $3,750; credit Cash $71,250

128) Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

A) Debit Cash $3,500; credit Sales $3,500

B) Debit Accounts Receivable $3,500; credit Sales $3,500

C) Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500

D) Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500

E) Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500

129) Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

A) Debit Accounts Receivable $4,800; credit Sales $4,800.

B) Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800.

C) Debit Cash $4,800; credit Sales $4,800.

D) Debit Cash $4,920; credit Credit Card Expense $120; credit Sales $4,800.

E) Debit Accounts Receivable $4,680; debit Credit Card Expense $120; credit Sales $4,800.

130) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?

A) $4,845

B) $4,180

C) $3,515

D) $3,700

E) $3,850

131) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be 0.5% of sales, what is the amount of the bad debts expense adjusting entry?

A) $4,625

B) $3,960

C) $5,290

D) $4,750

E) $4,825

132) On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

A) October 8

B) October 7

C) November 8

D) November 7

E) November 6

133) On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the amount due at maturity for the note and interest. (Use 360 days a year.)

A) $8,628

B) $8,192

C) $8,613

D) $8,500

E) $8,670

134) On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

A) Debit Accounts Receivable $8,500; credit Sales $8,500.

B) Debit Notes Receivable $8,670; credit Sales $8,670.

C) Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.

D) Debit Notes Receivable $8,500; credit Sales $8,500.

E) Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable $8,500.

135) On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)

A) Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670.

B) Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.

C) Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.

D) Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500.

E) Debit Cash $8,500; credit Notes Receivable $8,500.

136) On November 19, Nicholson Company receives a $15,000, 60-day, 8% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end? (Use 360 days a year.)

A) Debit Interest Receivable $1,200; credit Interest Revenue $1,200.

B) Debit Interest Receivable $140; credit Interest Revenue $140.

C) Debit Notes Receivable $140; credit Interest Revenue $140.

D) Debit Notes Receivable $140; credit Interest Receivable $140.

E) Debit Interest Revenue $200; credit Interest Receivable $200.

137) On November 1, Orpheum Company accepted a $10,000, 90-day, 8% note from a customer to settle his account. What entry should be made on the November 1 to record the acceptance of the note?

A) Debit Note Receivable $10,000; credit Cash $10,000.

B) Debit Note Receivable $10,000; credit Accounts Receivable $10,000.

C) Debit Note Receivable $10,000; credit Sales $10,000.

D) Debit Note Receivable $10,200; credit Accounts Receivable $10,000; credit Interest Revenue $200.

E) Debit Sales $10,000; credit Accounts Receivable $10,000.

138) The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense, reports the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

A) Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

B) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.

C) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.

D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.

E) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.

139) The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? 

A) Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975.

B) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.

C) Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475.

D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.

E) Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350.

140) The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense.

All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? 

A) Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19,750.

B) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225.

C) Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250.

D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350.

E) Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.

141) On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

A) Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300.

B) Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300.

C) Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300.

D) Debit Bad Debts Expense $2,300; credit Allowance for Doubtful Accounts $2,300.

E) Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300.

142) All of the following statements regarding the allowance method are true except:

A) The allowance method estimates bad debts expense at the end of each accounting period and records it with an adjusting entry.

B) The Allowance for Doubtful Accounts is a contra asset account.

C) The Allowance for Doubtful Accounts is subtracted from Accounts Receivable to report receivables at realizable value.

D) The allowance method does not record bad debt expense until a customer's account receivable is determined to be uncollectible.

E) The write-off an uncollectible account does not impact the income statement.

143) Using the allowance method for bad debts, the end of the period adjusting entry for estimated bad debts is:

A) Debit Bad Debts Expense and credit Accounts Receivable.

B) Debit Allowance for Doubtful Accounts and credit Accounts Receivable.

C) Debit Accounts Receivable and credit Allowance for Doubtful Accounts.

D) Debit Allowance for Doubtful Accounts and credit Bad Debts Expense.

E) Debit Bad Debts Expense and credit Allowance for Doubtful Accounts.

144) Using the allowance method for bad debts expense, the Allowance for Doubtful Accounts is decreased:

A) When the estimate of bad debts is expensed.

B) When a specific customer account is written off.

C) When a specific customer account is collected.

D) When a sale to a credit customer is made.

E) When all customer accounts are considered collectible.

145) Winkler Company borrows $85,000 and pledges its receivables as security. The journal entry to record this transaction would be:

A) Debit Cash of $85,000 and credit Accounts Receivable $85,000.

B) Debit Cash of $85,000 and credit Accounts Payable $85,000.

C) Debit Note Receivable $85,000 and credit Accounts Receivable $85,000.

D) Debit Cash $85,000 and credit Notes Payable $85,000.

E) Debit Accounts Receivable $85,000 and credit Notes Payable $85,000.

146) Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record this sale transaction would be:

A) Debit Cash of $625 and credit Sales $625.

B) Debit Cash of $625 and credit Accounts Receivable $625.

C) Debit Accounts Receivable $625 and credit Sales $625.

D) Debit Accounts Receivable $625 and credit Cash $625.

E) Debit Sales $625 and credit Accounts Receivable $625.

147) Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record the collection on account would be:

A) Debit Cash of $625 and credit Sales $625.

B) Debit Cash of $625 and credit Accounts Receivable $625.

C) Debit Accounts Receivable $625 and credit Sales $625.

D) Debit Accounts Receivable $625 and credit Cash $625.

E) Debit Sales $625 and credit Accounts Receivable $625.

148) MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be:

A) Debit Cash of $300 and credit Sales $300.

B) Debit Cash of $300 and credit Accounts Receivable $300.

C) Debit Accounts Receivable $300 and credit Sales $300.

D) Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.

E) Debit Cash $295.50 and credit Sales $295.50.

149) MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit cards. MacKenzie electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record this sale transaction would be:

A) Debit Cash of $180 and credit Sales $180.

B) Debit Cash of $180 and credit Accounts Receivable—Regional $180.

C) Debit Accounts Receivable—Regional $172.80; debit Credit Card Expense $7.20 and credit Sales $180.

D) Debit Cash $172.80; debit Credit Card Expense $7.20 and credit Sales $180.

E) Debit Cash $172.80 and credit Sales $172.80.

150) Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card. National Bank deducts a 3% service charge for sales on its credit cards. Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record the collection from the credit card company would be:

A) Debit Cash of $618 and credit Accounts Receivable—National $618.

B) Debit Cash of $618; credit Credit Card Expense $18 and credit Sales $600.

C) Debit Accounts Receivable—National $582; debit Credit Card Expense $18 and credit Sales $600.

D) Debit Cash $582; debit Credit Card Expense $18 and credit Sales $600.

E) Debit Cash $582 and credit Sales $582.

151) Frederick Company borrows $63,000 from First City Bank and pledges its receivables as security. Which of the following is true regarding this transaction:

A) First City Bank is the factor in this transaction.

B) Frederick Company's financial statements must disclose the pledging of receivables.

C) Frederick Company no longer has the risk of bad debts.

D) First City Bank takes ownership of the receivables at the time of the pledge.

E) No journal entry is required for this event.

152) Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?

A) Debit Accounts Receivable $7,200; credit Notes Receivable $7,200.

B) Debit Accounts Receivable $7,200; credit Allowance for Doubtful Accounts $7,200.

C) Debit Bad Debt Expense $7,344; credit Notes Receivable $7,344.

D) Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

E) Debit Accounts Receivable $7,056; debit Interest Revenue $144; credit Notes Receivable $7,200.

153) Match each of the following terms with the appropriate definitions.

A. Maker of a note

B. Bad debts

C. Aging of accounts receivable

D. Interest

E. Promissory note

F. Payee of a note

G. Accounts receivable

H. Allowance for doubtful accounts

I. Realizable value

J. Expense recognition principle

154) Match each of the following terms with the appropriate definitions.

A. Allowance method

B. Installment accounts receivable

C. Principal of a note

D. Maturity date

E. Materiality constraint

F. Direct write-off method

G. Dishonoring a note

H. Accounts receivable turnover

I. Factoring accounts receivable

J. Pledging accounts receivable

155) Describe how accounts receivable arise and how they accounted for, including the use of a subsidiary ledger and an allowance account.

156) Define a note receivable and explain how to calculate the interest due on a short-term note receivable.

157) Explain the options a company may use to convert its receivables to cash before they are due.

158) What is the accounts receivable turnover ratio? How is it calculated and how is it used to assess financial condition?

159) Describe the differences in how the direct write-off method and the allowance method are applied in accounting for uncollectible accounts receivables.

160) The allowance method of accounting for bad debts requires an estimate of bad debt expense at the end of each accounting period. The two common methods to determine the estimate amount are the percent of sales method and the percent of receivables method. Explain the basic differences between the two methods.

161) Explain how to record the receipt (acceptance) of a note receivable.

162) Explain the difference between honoring and dishonoring a note receivable.

163) What are some of the considerations management should make when assessing the accounts receivable turnover ratio?

164) A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account, less a 2.5% service charge. Assume that on April 13, the company sold $20,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

165) Gemstone Products allows customers to use bank credit cards to charge purchases. The bank used by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all credit card receipts deposited are credited to the company account on the day of deposit. Assume that on January 18, Gemstone Products sold and deposited $18,000 worth of bank credit card receipts. Prepare the general journal entry to record this transaction.

166) Mercks uses the perpetual inventory system, and accepts the Discovery bank credit card for credit card sales. Discovery charges Mercks a 3% fee, and all credit card receipts deposited are credited to the company account on the day of deposit. Prepare journal entries to record the following transaction.

167) Woods Co. uses a perpetual inventory system, and accepts the World Express bank credit card from its customers. World Express charges a 3.5% service fee and all credit card receipts deposited are credited to the company account on the day of deposit. On February 28, Woods sold $24,000 worth of merchandise to customers (that had cost $14,400) using the World Express charge card. Prepare the journal entries to record February 28 sales.

168) What is the maturity date of a 120-day note receivable dated March 5?

169) Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is due at maturity?

170) Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the total principal and interest due at maturity?

171) Calculate the amount of interest that would be owed on a $18,000, 60-day, 8% note receivable at maturity.

172) If a 90-day note receivable is dated July 12, what is the maturity date of the note?

173) If a 60-day note receivable is dated September 22, what is the maturity date of the note?

174) On May 31, a company had a balance in its accounts receivable of $103,200. Prepare journal entries to record the following transactions for June. Assume the company uses a perpetual inventory system.

175) Orman Co. sold $80,000 of accounts receivable to First Savings and incurred a 3% factoring fee. Prepare the journal entry for Orman Co. to record the sale.

176) Flax had net sales of $7,875 and its average accounts receivables is $1,250. Calculate Flax's accounts receivable turnover:

177) Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its competitor, Stanley, had net sales of $290,000 and average accounts receivables of $61,350. Calculate the accounts receivable turnover for both companies. Which company is doing a better job of managing its accounts receivables?

178) A company reports the following results in its financial statements:

Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these two results and give a possible explanation for any significant change.

179) The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred:

1. Prepare the general journal entries to record these transactions.

2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year.

180) The Lily Company uses the percent of receivables method of accounting for uncollectible accounts receivable, and a perpetual inventory system. As of January 1, its net accounts receivable totaled $192,000 (Accounts Receivable $200,000 less an $8,000 Allowance for Doubtful Accounts). During the current year, the following transactions occurred.

181) The Tulip Company uses the percent of receivables method of accounting for uncollectible accounts receivable, and a perpetual inventory system. As of January 1, its net accounts receivable totaled $485,000 (Accounts Receivable $500,000 less a $15,000 Allowance for Doubtful Accounts). During the current year, the following transactions occurred.

182) The Branson Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred:

Prepare the general journal entries to record these transactions.

183) Thatcher Company had a January 1, credit balance in its Allowance for Doubtful Accounts of $4,000 for the current year. The following transactions and events affected the Allowance for Doubtful Accounts during the current year:

What amount should appear in the allowance for doubtful accounts in the December 31, balance sheet for the current year?

184) Owens Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the Valley Company. On August 8, Year 2, after numerous attempts to collect the account, Owens determined that the account of the Valley Company was uncollectible.

a. Prepare the journal entry required to record the transactions on August 8.

b. Assuming that the $6,300 is material, explain how the direct write-off method violates the expense recognition principle in this case.

185) At December 31 of the current year, a company reported the following:

Total sales for the current year: $980,000 includes $160,000 in cash sales

Accounts receivable balance at Dec. 31, end of current year: $160,000

Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300 credit

Bad debts written off during the current year: $5,800.

Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 5% of accounts receivable.

186) At December 31 of the current year, a company reported the following:

Total sales for the current year: $980,000 includes $160,000 in cash sales

Accounts receivable balance at Dec. 31, end of current year: $160,000

Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300

Bad debts written off during the current year: $5,800.

Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 1.5% of credit sales:

187) A company has the following unadjusted account balances at December 31, of the current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end:

1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, of the current year, balance sheet.

2. Prepare the adjusting journal entry to record bad debts expense for the current year.

188) A company has the following unadjusted account balances at December 31, of the current year; Accounts Receivable of $183,400 and Allowance for Doubtful Accounts of $1,600 (credit balance). The company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end:

Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, of the current year, balance sheet.

189) A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

Prepare the adjusting entry to estimate bad debts assuming an aging analysis estimates that 8% of the outstanding accounts receivable will be uncollectible.

190) A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of credit sales.

191) A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following:

Required:

a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet.

b. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the credit balance of the Allowance for Doubtful Accounts on January 1 of the current year was $41,000 and that accounts receivable written off during the current year totaled $43,200.

c. Prepare the adjusting entry to record bad debts expense on December 31 of the current year.

d. Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31.

192) On December 31, of the current year, Spectrum Company's unadjusted trial balance revealed the following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on credit), and Allowance for Doubtful Accounts of $1,600 (credit balance).

Prepare the adjusting journal entry to record Spectrum's estimate for bad debts assuming:

1. 6.0% of the accounts receivable balance is assumed to be uncollectible.

2. Bad debts expense is estimated to be 1.5% of credit sales.

3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the balance sheet after adjustment assuming the percentage of sales method is used.

4. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.

5. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the balance sheet immediately after writing off the account in part 4 assuming the percentage of sales method is used.

193) Each December 31, Kimura Company ages its accounts receivable to determine the amount of its adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts account had a debit balance of $1,200 before any year-end adjustment for bad debts. Prepare the adjusting journal entry that Kimura Company should make on December 31, of the current year.

194) A company that uses the percent of sales to account for its bad debts had credit sales of $740,000 in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company wrote off, as uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2, Marshall Fresh unexpectedly paid his account in full. Prepare the necessary journal entries:

(a) On December 31, Year 1, to reflect the estimate of bad debts expense.

(b) On June 1, Year 2, to write off the bad debt.

(c) On December 21, Year 2, to record the unexpected collection.

195) The following series of transactions occurred during Year 1 and Year 2, when Foxworth Co. sold merchandise to Kevin Lewis. Foxworth's annual accounting period ends on December 31.

10/01/Yr 1 Sold $12,000 of merchandise to K. Lewis, terms n/30.

11/15/Yr 1 Lewis reports that he cannot pay the account until early next year. He agrees to exchange the account for a 120-day, 12% note receivable.

12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note.

03/15/Yr 2 Foxworth receives a check from Lewis for the maturity value (with interest) of the note.

03/22/Yr 2 Foxworth receives notification that Lewis' check is being returned for nonsufficient funds (NSF).

12/31/Yr 2 Foxworth writes off Lewis' account as uncollectible.

Prepare Foxworth Co.'s journal entries to record the above transactions. The company uses the allowance method to account for its bad debt expense.

196) Prepare general journal entries for the following transactions of Norman Company, assuming they use the allowance method to account for uncollectible accounts.

197) Jordan Co. uses the allowance method of accounting for uncollectible accounts. Jordan Co. accepted a $5,000, 12%, 90-day note dated May 16, from Beckam Co. in exchange for its past-due account receivable. Make the necessary general journal entries for Jordan Co. on May 16 and the August 14 maturity date, assuming that the:

a. Note is held until maturity and collected in full at that time.

b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.

198) Prepare general journal entries for the following transactions for the current year:

199) The following data are taken from the comparative balance sheets of Grayling Company. Compute and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How is the company doing in relation to its competitors?

200) On July 31, Orwell Co. has $448,800 of accounts receivable.

Required:

1. Prepare journal entries to record the following selected August transactions. The company uses the perpetual inventory system.

2. Explain what should be included in the footnotes to the August 31 financial statements as a result of these transactions.

3. Calculate the balance in the Accounts Receivable account as of August 10.

201) On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $13,750.

1. Prepare journal entries to record the following selected October transactions. The company uses the perpetual inventory system.

a. Sold $305,000 of merchandise (that cost $178,500) to customers on credit.

b. Received $395,100 cash in payment of accounts receivable.

c. Wrote off $15,700 of uncollectible accounts receivable.

d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its October 31 balance sheet.

202) Bonita Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

a. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method.

b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit.

c. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.

203) On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $14,250.

1. Prepare journal entries to record the following selected May transactions. The company uses the perpetual inventory system.

a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit.

b. Received $465,800 cash in payment of accounts receivable.

c. Wrote off $15,800 of uncollectible accounts receivable.

d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet.

204) At December 31, Yarrow Company reports the following results for its calendar year from the adjusted trial balance.

a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.1% of credit sales.

b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be .8% of total sales.

c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 7.0% of year-end accounts receivable.

205) White Company allows customers to make purchases on credit. The terms of all credit sales are 2/10, n/30, and all sales are recorded at the gross price. Other customers can use a bank credit card where the bank deducts a 4% service charge for credit card sales and credits the bank account of White immediately when credit card receipts are deposited. White uses the perpetual inventory method. Prepare journal entries to record the following selected transactions and events.

206) A supplementary record created to maintain a separate account for each customer is called the ________.

207) A ________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.

208) The person to whom a note is payable is known as the ________.

209) ________ is the charge for using borrowed money until its due date.

210) The ________ of a note is the day the principle plus interest of a note must be repaid.

211) Converting receivables to cash before they are due is usually done by either (1) ________ or (2) ________.

212) The accounts receivable turnover is calculated by dividing ________ by ________.

213) The________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before).

214) ________ are amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.

215) To write off an uncollectible account receivable when the allowance method of accounting for uncollectible accounts is used, a company should debit ________ and credit accounts receivable.

216) The ________ method of computing uncollectible accounts uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

217) The ________ methods of computing uncollectible accounts use balance sheet relations to estimate bad debts–mainly the relation between accounts receivable and the allowance amount.

218) The ________ method uses both past and current receivables to estimate the allowance amount, and assumes that the longer an amount is past due, the more likely it is to be uncollectible.

219) Felton Corporation purchased $4,000 in merchandise from Marita Co. Felton signed a 60-day, 10%, $4,000 promissory note. Marita should record the sale with a journal entry debiting ________ for $ ________ and crediting ________ for $ ________.

220) When the maker of a note is unable or refuses to pay at maturity, the note is said to be ________.

221) ________ refers to the expected proceeds from converting an asset into cash.