Question 1

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

To compute the maturity date, we need to add the number of days in the note to the date it was received.

90 days after July 9 is October 7. Therefore, the maturity date for the note is October 7.

Question 2

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

The entry should be to debit Notes Receivable for the amount of the note received ($8,500) and credit Accounts Receivable for the same amount to record the reduction of the customer's outstanding balance.

Question 3

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

The journal entry for a dishonored note includes debiting Accounts Receivable for the note's face value plus interest, crediting Interest Revenue for the interest amount, and crediting Notes Receivable for the note's face value. The interest is calculated as $7,800 * 10% * (60/360) = $130.

Question 4

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 that is used to reduce the balance of accounts receivable to reflect the amount of doubtful accounts that are expected not to be collected. The account is credited when bad debts expense is estimated and recorded, and it is debited when uncollectible accounts are written off. Overall, the Allowance for Doubtful Accounts serves as an estimate of the amount of accounts receivable that will ultimately prove to be uncollectible.

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

The entry should reflect the amount received by Jervis, taking into account the 3% charge assessed by Northern Bank. The entry will therefore debit Cash for the net amount received (i.e. $3,500 - $105 = $3,395), debit the Credit Card Expense account for the charge assessed by Northern Bank ($105), and credit Sales for the gross amount of credit sales ($3,500). Therefore, Choice D is the correct entry to record the deposit on June 28.

Question 6

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

On October 17, Uniform Supply accepted a 90-day, 10% note from Tracy Janitorial for $4,800. Therefore, the amount of interest revenue for the 90 days is calculated using the following formula:
Interest = Principal x Rate x Time
Interest = $4,800 x 10% x (90/360) = $120

On January 15 of the next year, when the note is paid, the following journal entry should be made:
Debit Cash $4,920 (principal + interest)
Credit Interest Revenue $20 (interest earned so far)
Credit Interest Receivable $100 (unearned interest)
Credit Notes Receivable $4,800 (the original amount of the note)

Therefore, the correct answer is D.

Question 7

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

The note is dishonored, so the amount due is transferred to Accounts Receivable. Interest for 90 days is calculated as $4,800 * 10% * (90/360) = $120. The entry records the total amount due ($4,920) as Accounts Receivable, credits the original note amount, and separates the interest into Interest Revenue and Interest Receivable.

Question 8

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

Jervis receives cash of $71,250 after the 5% fee ($3,750) is deducted from the $75,000 accounts receivable. The entry debits Cash for $71,250, debits Factoring Fee Expense for $3,750, and credits Accounts Receivable for $75,000.

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 0.5% of sales, what is the amount of the bad debts expense adjusting entry?

Accepted Answer

The bad debts expense is calculated as 0.5% of sales, which is 0.5% of $925,000, resulting in $4,625.

Question 10

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

- Brinker had $4,800 in credit sales using First Savings Bank's credit card, which assesses a 2.5% charge on sales. 
- The 2.5% charge amounts to $120 (2.5% of $4,800). 
- Therefore, Brinker would receive only $4,680 ($4,800 - $120) as the net amount from this transaction. 
- We need to record this transaction in the books of Brinker. 
- The entry should debit the amount received ($4,680) and the credit card expense ($120) and credit the total sales ($4,800). 
- Therefore, the correct journal entry would be: 
Debit Cash $4,680; Debit Credit Card Expense $120; Credit Sales $4,800.

Question 11

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. $$\begin{array} { | l | r | l | } 
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit } \
\hline
\end{array}$$ 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 company estimates 1% of credit sales to be uncollectible. Therefore, the bad debts expense is 1% of $2,100,000, which equals $21,000.

Question 12

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, it is essentially a promise to receive cash in the future. Therefore, the November 1 entry should record the increase in the note receivable account and the decrease in the accounts receivable account. No interest revenue should be recognized at this point, as it has not yet been earned. The correct entry is:
Debit Note Receivable $10,000; credit Accounts Receivable $10,000.

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

The interest on the note is calculated as $8,500 * 8% * (90/360) = $170. Therefore, the total cash received is $8,500 (principal) + $170 (interest) = $8,670. The correct entry is to debit Cash for $8,670, credit Interest Revenue for $170, and credit Notes Receivable for $8,500.

Question 14

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: $$\begin{array} { | l | r | l | } 
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Debit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit } \
\hline
\end{array}$$ 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 estimated bad debts expense is 3.5% of ending accounts receivable, which is $470,500 ($13,500 + $6,000 + $451,000). Therefore, the adjusting entry should be a debit to Bad Debts Expense for $16,475 ($470,500 x 3.5%) and a credit to Allowance for Doubtful Accounts for $16,475. Choice C is the only option that matches this amount.

Question 15

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: $$\begin{array} { | l | r | l | } 
\hline \text { Accounts receivable } & \$ 435,000 & \text { Debit } \
\hline \text { Allowance for Doubtful Accounts } & 1,250 & \text { Credit } \
\hline \text { Net Sales } & 2,100,000 & \text { Credit } \
\hline
\end{array}$$ 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 answer of The unadjusted trial balance at year-end for...

Question 16

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

The answer of Craigmont uses the allowance method to account...

Question 17

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

The amount due at maturity is the face amount of the note plus the interest. The interest is calculated as follows:Interest = Face amount x Interest rate x TimeInterest = $8,500 x 8% x 90/360Interest = $170The amount due at maturity is:Amount due = Face amount + InterestAmount due = $8,500 + $170Amount due = $8,670

Question 18

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

The interest on the note is calculated as follows: 
Principal x Rate x Time = Interest
$4,800 x 10% x (90/360) = $120

Therefore, Uniform Supply should debit Interest Receivable for $120 and credit Interest Revenue for $120 on December 31 to record the accrued interest on the note. Option C is the correct answer because it reflects these journal entries.

Question 19

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

To find the amount due on the dishonored note, we need to calculate the interest for the 60-day period. The formula for simple interest is:

Interest = Principal x Rate x Time

In this case, the principal is $7,800, the rate is 10% (or 0.10), and the time is 60/360 (since we use a 360-day year). Therefore:

Interest = $7,800 x 0.10 x 60/360 = $130

So the amount due on the dishonored note would be the original principal plus the interest, or $7,800 + $130 = $7,930. Therefore, the best choice is (C).

Question 20

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

The interest for the period from November 19 to December 31 (42 days) needs to be accrued. The interest is calculated as $15,000 * 8% * (42/360) = $140. Therefore, the adjusting entry is to debit Interest Receivable and credit Interest Revenue for $140.

Quiz 9: Accounting for Receivables

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.

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?

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.)

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

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?

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.)