Question 1

Mix Recording Studios purchased $7,800 in electronic components from TechCom. Mix Recording 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

The correct entry records the note as a Notes Receivable for the principal amount of $7,800, with the corresponding credit to Sales for the same amount. Interest is not recorded at the time of sale but accrued over the note's term.

Question 2

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

Accepted Answer

Honoring a note means that it has been paid in full. This is the only option that accurately describes what it means for a note to be honored. Signing, guaranteeing, notarizing, and cosigning a note do not necessarily indicate that it has been paid in full.

Question 3

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 4

Temper Company has credit sales of $3.10 million for year 2013. Temper estimates that .9% of the credit sales will not be collected. On December 31, 2013, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222. Assuming the company uses the percent of sales method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Accepted Answer

The answer of Temper Company has credit sales of $3.10...

Question 5

Wallah Company agreed to accept $5,000 in cash along with an $8,000, 90-day, 13.5% note from customer Judith Klemper to settle her $13,000 past-due account. How should Wallah record this transaction?

Accepted Answer

Wallah Company should record the cash received and the note receivable, and remove the accounts receivable for Judith Klemper, as the transaction settles her past-due account.

Question 6

An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:

Accepted Answer

The allowance method of accounting for bad debts estimates and reports bad debts expense during the period in which credit sales are made, and reports accounts receivable at their net realizable value, which represents the amount of cash expected to be collected. This is considered the most accurate and conservative method of accounting for bad debts.

Question 7

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 that should be debited to Bad Debts Expense, we need to first calculate the estimated amount of uncollectible accounts. 6% of outstanding accounts receivable of $97,250 is $5,835. However, we already have a credit balance of $951 in Allowance for Doubtful Accounts, which means we need to adjust our estimation by subtracting the existing credit balance. $5,835 - $951 = $4,884, which should be debited to Bad Debts Expense. Therefore, the correct answer is C.

Question 8

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 to pay the amount due at maturity, resulting in the note being unpaid and possibly leading to legal action. Protesting a note refers to the process of recording and formalizing the dishonor of a note, while closing a note refers to paying off a note in full before the maturity date. Discounting a note refers to selling a note before it is due in order to receive immediate cash, often at a lower amount than the face value of the note. Depreciating a note refers to the decline in value of the note over time.

Question 9

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 method described is the aging of accounts receivable method, which involves categorizing outstanding receivables by their length of time past due and applying estimated bad debt percentages to each category. This method provides a more accurate estimate of bad debts expense than the percent of sales method, which simply applies a percentage to total sales. The direct write-off method is not a reliable method of estimating bad debts expense, and the aging of investments and percent of accounts receivable methods are not relevant to this question.

Question 10

A company used 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: $\begin{array}{|l|r|}
\hline \text { Accounts receivable } & \$ 245,000 \text { debit } \
\hline \text { Allowance for uncollectible accounts } & 300 \text { credit } \
\hline \text { Net Sales } & 900,000 \text { credit } \
\hline
\end{array}$ All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Accepted Answer

The bad debts expense is calculated as 0.5% of net sales: $0.005 \times 900,000 = 4,500$.

Question 11

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

Accepted Answer

The correct entries to record the recovery of a previously written-off account under the allowance method are to first reverse the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts, and then record the cash receipt by debiting Cash and crediting Accounts Receivable.

Question 12

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

Accepted Answer

The answer of The amount due on the date of...

Question 13

Acme Company has credit sales of $3.10 million for year 2013. Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible. Historically, .9% of sales have been uncollectible. On December 31, 2013, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,575. Acme prepared a schedule of its December 31, 2013, accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here: $\begin{array}{ccc}
\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \
24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$ Assuming the company uses the percent of accounts receivable method, what is the amount that Acme will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Accepted Answer

The answer of Acme Company has credit sales of $3.10...

Question 14

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 company needs to adjust the Allowance for Doubtful Accounts to reflect the estimated uncollectible amount of $15,750. Since there is already a debit balance of $175 in the allowance account, the company must record an additional $15,925 ($15,750 + $175) as Bad Debt Expense to bring the allowance account to the correct balance.

Question 15

According to GAAP, the amount of bad debt expense can be estimated by:

Accepted Answer

According to GAAP, the amount of bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method. Therefore, the best choice is E, as it accurately reflects the options available for estimating bad debt expense.

Question 16

Temper Company has credit sales of $3.10 million for year 2013. Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible. Historically, .9% of sales have been uncollectible. On December 31, 2013, the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575. Temper prepared a schedule of its December 31, 2013, accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here: $\begin{array}{ccc}
\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \
24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$ Assuming the company uses the percent of accounts receivable method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Accepted Answer

The estimated uncollectible amount is calculated by multiplying each age category by its expected uncollectible percentage and summing the results: $620,000 \times 1.05\% + 248,000 \times 1.80\% + 49,600 \times 6.30\% + 24,800 \times 31.75\% + 4,960 \times 66.00\% = 21,522.20$. The allowance account needs to be adjusted to this amount, and since it has a debit balance of $2,575, the bad debt expense will be $21,522.20 + $2,575 = $24,097.20. However, since the question asks for the amount to enter as Bad Debt Expense, the correct choice is the amount needed to adjust the allowance to the estimated uncollectible, which is $21,522.20.

Question 17

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 correct entry records the promissory note as a Notes Receivable for the principal amount of $5,000 and credits Sales for the same amount. Interest is not recorded at the time of the sale but will be recognized over the term of the note.

Question 18

On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful Accounts, credit balance of $1,245. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?

Accepted Answer

To determine the amount that should be debited to Bad Debts Expense, we need to calculate the estimated uncollectible accounts using the given percentage:

Estimated uncollectible accounts = 4% x $88,790 = $3,551.60

Next, we need to adjust the Allowance for Doubtful Accounts to reflect this estimate. Since the Allowance for Doubtful Accounts currently has a credit balance of $1,245, we need to increase it by $3,551.60 (to offset the estimated uncollectible accounts). Thus, the new balance in the Allowance for Doubtful Accounts should be:

$1,245 + $3,551.60 = $4,796.60 (credit balance)

Finally, we need to record the expense for this estimated amount by debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts. The amount to be debited to Bad Debts Expense is $3,551.60.

Therefore, the best choice is D. $2,306.60.

Question 19

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 $39,375 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $3,285. 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 needs to adjust the Allowance for Doubtful Accounts to reflect the estimated uncollectible amount of $39,375. Since there is already a credit balance of $3,285, the adjustment needed is $39,375 - $3,285 = $36,090.

Question 20

Teller, a calendar year company, purchased merchandise from TechCom on October 17 of the current year. TechCom accepted Teller's $4,800, 90-day, 10% note as payment. What entry should TechCom make on January 15 of the next year when the note is paid, assuming an adjusting entry for interest was made for interest on December 31?

Accepted Answer

The answer of Teller, a calendar year company, purchased merchandise...

Quiz 7: Accounting for Receivables