Question 1

A company has $90,000 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 $800. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Accepted Answer

The answer of A company has $90,000 in outstanding accounts...

Question 2

Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day, 10% promissory note for the $5,000. TechCom's journal entry to record the sales portion of the transaction is:

Accepted Answer

The journal entry to record a sale made on credit with a promissory note is to debit Notes Receivable for the amount of the note plus any interest and credit Sales for the total amount. Therefore, the journal entry is to Debit Notes Receivable $5,000 and Credit Sales $5,000. Since the note is for 90 days with a 10% rate, interest will also be recorded separately when the note is collected.

Question 3

Hankco accepts all major bank credit cards, including Omni Bank's, which assesses a 4% charge on sales for using its card. On June 28, Hankco had $3,500 in Omni Card credit sales. What entry should Hankco make on June 28 to record the deposit?

Accepted Answer

Hankco should recognize the cash received net of the credit card fee. The 4% fee on $3,500 is $140, so they receive $3,360 ($3,500 - $140). They debit Cash for the amount received, debit Credit Card Expense for the fee, and credit Sales for the total sales amount.

Question 4

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on December 31, to record the accrued interest on the note?

Accepted Answer

TechCom should record the accrued interest on the note using the following journal entry:

Debit Interest Receivable $100 
Credit Interest Revenue $100

This is because the interest on the note is calculated as follows:

Principal x Annual Interest Rate x Time = Interest
$4,800 x 10% x 75/365 = $100

Therefore, TechCom should recognize $100 of interest revenue and record an increase in its interest receivable account on December 31.

Question 5

MixRecording Studios purchased $7,800 in electronic components from TechCom. MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal entry to record the sales portion of the transaction is:

Accepted Answer

TechCom's journal entry to record the sales portion of the transaction involves debiting Notes Receivable for the principal amount of the note, $7,800, and crediting Sales for the same amount, $7,800. This entry reflects the creation of a promissory note receivable in exchange for the sale of goods, without initially recognizing any interest income. Interest income would be recognized over the term of the note.

Question 6

The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:

Accepted Answer

The amount due on the maturity date includes the principal plus interest. Interest = Principal x Rate x Time = $6,000 x 8% x (60/360) = $80. Therefore, the total due is $6,000 + $80 = $6,080.

Question 7

Darby 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 estimated uncollectible accounts are 4% of $104,500, which is $4,180. The current allowance is $665, so the adjusting entry needed is $4,180 - $665 = $3,515.

Question 8

Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's entry to record the transaction should include a:

Accepted Answer

TechCom is the party who is lending money and therefore has an asset in the form of a Notes Receivable. When Electron borrows money and signs a promissory note, it becomes the debtor, and the amount borrowed becomes a liability known as Notes Payable. Therefore, TechCom should debit Notes Receivable to record the transaction, which represents an increase in its asset.

Question 9

When the maker of a note honors a note this indicates that the note is:

Accepted Answer

When the maker of a note honors a note, it means they have paid it in full.

Question 10

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on January 15 of the next year when the note is paid?

Accepted Answer

The note's interest for 90 days is $120 ($4,800 x 10% x 90/360). By January 15, 75 days have passed in the previous year, accruing $100 interest, and 15 days in the current year, accruing $20 interest. Thus, TechCom should credit $100 to Interest Receivable and $20 to Interest Revenue.

Question 11

On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

Accepted Answer

To calculate the amount to be debited to Bad Debts Expense, we need to first calculate the balance required in the Allowance for Doubtful Accounts account.

6% of the outstanding accounts receivable of $97,250 is $5,835.

The current balance in the Allowance for Doubtful Accounts account is a credit of $951.

So, we need to increase the balance in this account by $5,835 - $951 = $4,884.

Therefore, we should debit Bad Debts Expense for $4,884. Choice C is correct.

Question 12

Calco accepts all major bank credit cards, including First Bank's, which assesses a 3.5% charge on sales for using its card. On May 25, Calco had $4,800 in First Bank Card credit sales. What entry should Calco make on May 25 to record the deposit?

Accepted Answer

Calco needs to record the credit card expense of 3.5% charged by First Bank's card. The actual amount that Calco will receive after deducting the expenses will be $4,632 ($4,800 - $168). Therefore, Calco should debit Cash for $4,632 and Credit Card Expense for $168 (both debited as expenses) and credit Sales for $4,800. This will ensure that the accounts are accurately recorded.

Question 13

MixRecording Studios purchased $7,800 in electronic components from TechCom. MixRecording Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount due on the note?

Accepted Answer

If the note is dishonored, MixRecording Studios will owe the principal amount of $7,800 plus 10% interest for 60 days, which is $130. Therefore, the total amount due on the note would be $7,800 + $130 = $7,930.

Question 14

Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. If the note is dishonored, what entry should TechCom make on January 15 of the next year?

Accepted Answer

When a note is dishonored, the maker (Teller) fails to pay the note when it is due. The holder of the note (TechCom) must then make an adjusting entry to record the dishonored note and any related interest. The entry to record the dishonored note on January 15 of the next year is:Debit Cash $4,920Credit Interest Revenue $20Credit Interest Receivable $100Credit Notes Receivable $4,800This entry records the receipt of the cash payment, the recognition of the interest revenue earned, and the removal of the note receivable from the books.

Question 15

On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer Eric Simms as payment on his account. Compute the maturity date for the note.

Accepted Answer

The maturity date is calculated by adding 90 days to the date the note was issued. Starting from August 9, adding 90 days results in October 7.

Question 16

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

Accepted Answer

The aging of accounts receivable method involves analyzing the outstanding accounts and their length of time past due, which allows for a more accurate estimation of bad debts expense. The other options do not involve such a detailed examination and may result in less accurate estimates.

Question 17

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, 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 $175. 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 A company ages its accounts receivables to...

Question 18

Failure by a promissory note's maker to pay the amount due at maturity is known as:

Accepted Answer

Dishonoring a note refers to the failure of the maker of a promissory note to pay the amount due at maturity. The other options do not accurately describe this situation - protesting a note typically involves a formal declaration of non-payment, closing a note is not a common term in this context, discounting a note refers to the process of obtaining funds for a note before maturity, and depreciating a note generally refers to a decrease in the value of an asset over time, which is not applicable in this case.

Question 19

An accounting procedure 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 is the:

Accepted Answer

The allowance method estimates and reports bad debts expense based on credit sales, and also reports accounts receivable at the estimated amount to be collected, making it the correct choice. The aging of notes receivable is a method used to determine the allowance for doubtful accounts for notes receivable specifically. The adjustment method for uncollectible debts is not a commonly used accounting method. The direct write-off method only records bad debts when they are actually deemed uncollectible, and does not estimate bad debts expense. The cash basis method does not consider accounts receivable or bad debts expense, as it only records revenue when cash is received.

Question 20

The Allowance for Doubtful Accounts:

Accepted Answer

The answer of The Allowance for Doubtful Accounts:
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Quiz 9: Accounting for Receivables