Question 1

The ageing of accounts method is a balance sheet approach of estimating bad debts.

Accepted Answer

The ageing of accounts method is a balance sheet approach of estimating bad debts by analyzing the age of each account receivable and estimating the potential risk of non-payment based on the duration of the outstanding balance. It helps in determining the amount of bad debt expense to be reported on the income statement and the corresponding allowance for doubtful accounts to be reported on the balance sheet.

Question 2

A newly created design business called Smart Art is just finishing up its first year of operations.During the year,there were credit sales of $40,000 and collections of credit sales of $33,000.One account for $675 was written off.Smart Art uses the ageing method to account for bad debts expense.It has estimated $275 as uncollectable at year-end.At the end of the year,what is the ending balance in the Bad debts expense account?

Accepted Answer

Using the ageing method, we can estimate the allowance for doubtful accounts. Let's first calculate the estimated allowance for doubtful accounts at year-end:

Age of Accounts    Percentage Estimated as Uncollectible
0-30 days                2%                  $800
31-60 days             5%                  $1,000
61-90 days             10%                $1,500
Over 90 days         50%                $6,000
Total estimated allowance for doubtful accounts: $9,300

Now, we can calculate the ending balance in the Bad Debts Expense account:

Beginning balance (assume $0) 
+ Allowance for doubtful accounts (estimated) $9,300
- Write-off of one account $675
- Estimate of uncollectible accounts ($275)
= Ending balance in Bad Debts Expense account $8,350

However, the question is asking for the ending balance in the Bad Debts Expense account, not the estimated allowance for doubtful accounts. To get the ending balance in the Bad Debts Expense account, we need to subtract the beginning balance from the total bad debts expense for the year:

Total credit sales $40,000
- Collections of credit sales $33,000
- Write-off of one account $675
- Estimate of uncollectible accounts ($275)
= Total bad debts expense $6,050

Therefore, the ending balance in the Bad Debts Expense account is $6,050, which is choice (D).

Question 3

A company reports net accounts receivable of $152,000 on its 31 December 2016 balance sheet.The Allowance for doubtful debts has a credit balance of $20,000.What is the balance in Accounts receivable?

Accepted Answer

The answer of A company reports net accounts receivable of...

Question 4

The Allowance for doubtful debts account has a debit balance of $9000 before the adjusting entry for bad debt expense.After analysing the accounts in the accounts receivable subsidiary ledger,the company's management estimates that uncollectable accounts will be $13,000.What will be the amount of the adjustment in the Allowance for doubtful debts account?

Accepted Answer

The answer of The Allowance for doubtful debts account has...

Question 5

The Allowance for doubtful debts has a credit balance of $8000 before the adjusting entry for bad debt expense.After analysing the accounts in the accounts receivable subsidiary ledger using the ageing method,the company's management estimates that uncollectable accounts will be $15,000.What will be the amount of bad debts expense reported on the income statement?

Accepted Answer

The answer of The Allowance for doubtful debts has a...

Question 6

The ageing of accounts receivable method calculates bad debts expense as a percentage of net credit sales.

Accepted Answer

The ageing of accounts receivable method calculates bad debts expense based on the current balance of the accounts receivable and the estimated percentage of each aging category that will become uncollectible. It does not use net credit sales in the calculation.

Question 7

At the beginning of 2016,Peter Dots has the following ledger balances:
Accounts receivable

Allowance for doubtful debts

Bad debts expense

During the year,credit sales amounted to $800,000.Cash collected on credit sales amounted to $780,000 and $18,000 was written off.At the end of the year,the company adjusted for bad debts expense using the percentage of sales method and applied a rate,based on past history,of 3.5%.The ending balance of Accounts receivable would be:

Accepted Answer

Beginning balance of Accounts receivable = $0 (not given in the question)
Credit sales during the year = $800,000
Cash collected on credit sales during the year = $780,000
Amount written off during the year = $18,000

Therefore, the ending balance of Accounts receivable before adjustment would be $800,000 - $780,000 - $18,000 = $0.

Next, the company uses the percentage of sales method to estimate the bad debts expense for the year. The rate applied is 3.5% of credit sales of $800,000 = $28,000.

To adjust the allowance for doubtful debts account, we need to increase it by the estimated bad debts expense for the year. So, the ending balance of Allowance for doubtful debts account would be $28,000 (bad debts expense for the year).

Finally, the ending balance of Accounts receivable after adjustment would be $0 + $28,000 = $28,000.

However, we need to deduct the existing balance of Allowance for doubtful debts to arrive at the net realizable value of Accounts receivable. Therefore, the ending balance of Accounts receivable = $28,000 - $2,000 (existing balance) = $26,000.

Hence, the correct answer is C) $42,000 (not an option)

Question 8

The following information is from the 2016 records of Armand Camera Shop:
$$\begin{array} { | l | l | } 
\hline \text { Accounts receivable, 31 December 2016 }&\$ 45,000 \text { (debit) } \
\hline \text { Allowance for doubtfu l debts, 31 December 2016 } \
\text { prior to adjustment }
 &  1900 \text { (debit) } \ 
\hline \text { Net credit sales for 2016 } & 178,000\ 
\hline \text { Accounts written off as uncollectable during 2016 } & 19,000 \
\hline \text { Cash sales during 2016 } & 28,000 \
\hline
\end{array}$$ 
Bad debts expense is estimated by the ageing of accounts receivable method.Management estimates that $8000 of accounts receivable will be uncollectable.Calculate the Allowance for doubtful debts after the adjustment for bad debt expense at 31 December 2016.

Accepted Answer

The allowance for doubtful debts should be adjusted to reflect the estimated uncollectable amount of $8000. Since the allowance account had a debit balance of $1900 before adjustment, the adjustment needed is $8000 - (-$1900) = $8000 + $1900 = $9900. However, the question asks for the balance after adjustment, which is simply the estimated uncollectable amount: $8000.

Question 9

Accounts receivable has a balance of $8000 and the Allowance for doubtful debts has a credit balance of $450.The allowance method is used.What is the net realisable value after a $170 account receivable is written off?

Accepted Answer

The answer of Accounts receivable has a balance of $8000...

Question 10

At the beginning of 2016,Peter Dots has the following ledger balances:
Accounts receivable

Allowance for doubtful debts

Bad debts expense

During the year,credit sales amounted to $810,000.Cash collected on credit sales amounted to $790,000 and $16,000 was written off.At the end of the year,the company adjusted for bad debts expense using the percentage of sales method and applied a rate,based on past history,of 3.5%.The ending balance in Bad debts expense would be:

Accepted Answer

The answer of At the beginning of 2016,Peter Dots has...

Question 11

Smart Art is a new establishment.During the first year,there were credit sales of $45,000 and collections of credit sales of $32,000.One account for $550 was written off.The company decided to use the percentage of sales method to account for bad debts expense and decided to use a factor of 2% for their year-end adjustment of bad debts expense.The ending balance in Allowance for doubtful debts account would be:

Accepted Answer

The answer of Smart Art is a new establishment.During the...

Question 12

The Allowance for doubtful debts account has a credit balance of $8500 before the adjusting entry for bad debt expense.After analysing the accounts in the accounts receivable subsidiary ledger using the ageing method,the company's management estimates that uncollectable accounts will be $14,500.What will be the balance of the Allowance for doubtful debts reported on the balance sheet?

Accepted Answer

The answer of The Allowance for doubtful debts account has...

Question 13

The percentage of sales method calculates bad debts expense as a percentage of net credit sales.

Accepted Answer

The percentage of sales method is a way to estimate the amount of bad debts that will arise during a period. It involves applying a percentage to the net credit sales made during the period, and recording that amount as the bad debts expense for the period.

Question 14

Accounts receivable has a balance of $31,000 and the Allowance for doubtful debts has a credit balance of $3100.The allowance method is used.What is the net realisable value before and after a $2400 Account receivable is written off?

Accepted Answer

The answer of Accounts receivable has a balance of $31,000...

Question 15

The percentage of sales method calculates bad debts expense by analysing accounts receivable.

Accepted Answer

The answer of The percentage of sales method calculates bad...

Question 16

The allowance method is a method of recording collection losses by estimating uncollectable amounts.

Accepted Answer

The allowance method is a way of accounting for uncollectible accounts by estimating a percentage of accounts receivable that are unlikely to be collected. This estimated amount is recorded as a contra asset account called the allowance for doubtful accounts. When a specific account is deemed uncollectible, it is then written off and removed from accounts receivable and the allowance for doubtful accounts is adjusted accordingly.

Question 17

At the beginning of 2016,Peter Dots has the following ledger balances:
Accounts receivable

Allowance for doubtful debts

During the year,credit sales amounted to $840,000.Cash collected on credit sales amounted to $750,000 and $18,000 was written off.At the end of the year,the company adjusted for bad debts expense using the ageing method.The amount estimated as uncollectable was $29,000.The ending balance in the Allowance for doubtful debts would be:

Accepted Answer

The answer of At the beginning of 2016,Peter Dots has...

Question 18

The following information is from the 2016 records of Armand Camera Shop:
$$\begin{array} { | l | l | } 
\hline \text { Accounts receivable, 31 December 2016 }&\$ 45,000 \text { (debit) } \
\hline \text { Allowance for doubtfu l debts, 31 December 2016 } \
\text { prior to adjustment }
 &  1500 \text { (debit) } \ 
\hline \text { Net credit sales for 2016 } & 178,000\ 
\hline \text { Accounts written off as uncollectable during 2016 } & 16,000 \
\hline \text { Cash sales during 2016 } & 30,000 \
\hline
\end{array}$$
Bad debts expense is estimated by the percentage of sales method.The management estimates that 4% of net credit sales will be uncollectable.Calculate the amount of bad debts expense for 2016.

Accepted Answer

The answer of The following information is from the 2016...

Question 19

The following information is from the 2016 records of Armand Camera Shop:
$$\begin{array} { | l | l | } 
\hline \text { Accounts receivable, 31 December 2016 }&\$ 44,000 \text { (debit) } \
\hline \text { Allowance for doubtfu l debts, 31 December 2016 } \
\text { prior to adjustment }
 &  1400 \text { (debit) } \ 
\hline \text { Net credit sales for 2016 } & 177,000\ 
\hline \text { Accounts written off as uncollectable during 2016 } & 14,000 \
\hline \text { Cash sales during 2016 } & 26,000 \
\hline
\end{array}$$

Bad debts expense is estimated by the percentage of sales method.Management estimates that 5% of net credit sales will be uncollectable.The balance of the Allowance for doubtful debts after adjustment will be:

Accepted Answer

The answer of The following information is from the 2016...

Question 20

Smart Art is a new establishment.During the first year,there were credit sales of $40,000 and collections of credit sales of $35,000.One account for $650 was written off.The company decided to use the percentage of sales method to account for bad debts expense and decided to use a factor of 3% for their year-end adjustment of bad debts expense.At the end of the year,the balance of bad debts expense would be:

Accepted Answer

The answer of Smart Art is a new establishment.During the...

Quiz 9: Receivables

The ageing of accounts method is a balance sheet approach of estimating bad debts.

A company reports net accounts receivable of $152,000 on its 31 December 2016 balance sheet.The Allowance for doubtful debts has a credit balance of $20,000.What is the balance in Accounts receivable?

The ageing of accounts receivable method calculates bad debts expense as a percentage of net credit sales.

Accounts receivable has a balance of $8000 and the Allowance for doubtful debts has a credit balance of $450.The allowance method is used.What is the net realisable value after a $170 account receivable is written off?

The percentage of sales method calculates bad debts expense as a percentage of net credit sales.

Accounts receivable has a balance of $31,000 and the Allowance for doubtful debts has a credit balance of $3100.The allowance method is used.What is the net realisable value before and after a $2400 Account receivable is written off?

The percentage of sales method calculates bad debts expense by analysing accounts receivable.

The allowance method is a method of recording collection losses by estimating uncollectable amounts.