Question 1

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?

Accepted Answer

$925,000 * 0.005 = $4,625

Question 2

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.)

Accepted Answer

Interest accrued at December 31: $4,800 * .10 * 75/360 = $100
Interest earned during January: $4,800 * .10 * 15/360 = $20

Question 3

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

Accepted Answer

When a company accepts a note receivable in settlement of an account, it debits Note Receivable for the principal amount of the note and credits Accounts Receivable, indicating that the customer's outstanding receivable balance is replaced by the note receivable. Interest is not recognized until it is earned, which would be over the life of the note, not at the time of accepting the note.

Question 4

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:
$\begin{array}{|l|r|r|}
\hline\text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Credit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit }\
\hline
\end{array}$

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?

Accepted Answer

The estimated uncollectible amount is 3.5% of $435,000 accounts receivable, which equals $15,225. The existing credit balance in the Allowance for Doubtful Accounts is $1,250. The adjusting entry should increase the allowance to the new estimated total of $15,225. Therefore, the adjustment needed is $15,225 - $1,250 = $13,975.

Question 5

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?

Accepted Answer

Credit card fee expense: $3,500 * .03 = $105
Cash received: $3,500 - $105 = $3,395

Question 6

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

Accepted Answer

The Allowance for Doubtful Accounts is not a liability account, it is a contra asset account.

Question 7

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.
$\begin{array}{|l|r|r|}
\hline\text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text {  Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit }\
\hline
\end{array}$

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?

Accepted Answer

The estimated bad debts expense is 1% of net sales, which is $2,100,000 * 0.01 = $21,000.

Question 8

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?

Accepted Answer

When a company receives a note receivable in exchange for an outstanding account receivable, it should debit Notes Receivable for the principal amount of the note and credit Accounts Receivable for the same amount, reflecting the replacement of one type of receivable with another.

Question 9

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?

Accepted Answer

$104,500 * 0.04 = $4,180 - $665 = $3,515

Question 10

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.)

Accepted Answer

$7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930

Question 11

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.)

Accepted Answer

Interest accrued at December 31: $4,800 * .10 * 75/360 = $100
Interest earned during January: $4,800 * .10 * 15/360 = $20

Question 12

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.)

Accepted Answer

$15,000 * 0.08 * 42/360 = $140

Question 13

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.)

Accepted Answer

$8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670

Question 14

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?

Accepted Answer

Credit card fee expense: $4,800 * 0.025 = $120
Cash received: $4,800 - $120 = $4,680

Question 15

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.)

Accepted Answer

$7,800 * 0.10 * 60/360 = $130 + $7,800 = $7,930

Question 16

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.(Use 360 days a year.)

Accepted Answer

$8,500 * 0.08 * 90/360 = $170 + $8,500 = $8,670

Question 17

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?

Accepted Answer

Interest accrued at December 31: $4,800 * .10 * 75/360 = $100

Question 18

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.

Accepted Answer

July 31-9 = 22; August = 31; September = 30; 90 - 22 - 31 - 30 = October 7

Question 19

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:
$\begin{array}{|l|r|r|}
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit }\
\hline
\end{array}$
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?

Accepted Answer

The answer of The unadjusted trial balance at year-end for...

Question 20

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?

Accepted Answer

Factoring fee expense: $75,000 * .05 = $3,750
Cash received: $75,000 - $3,750 = $71,250

Quiz 7: Accounting for Receivables

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.)