Question 1

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 the company receives the note, it should debit Notes Receivable for the amount of the note, in this case, $8,500. The credit should be to Accounts Receivable, as the payment is being applied to the customer's outstanding balance. Option A is incorrect since it credits Sales, which is not appropriate for a note receivable. Option C is incorrect because it assumes that the note will earn interest over the 90-day term, which may or may not be the case. Option D is incorrect because it debits Accounts Receivable, which is already being reduced by the credit to that account. Option E is also incorrect because it credits Sales instead of Accounts Receivable.

Question 2

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

If the note is dishonored, Valley Spa will owe the original amount of $7,800 plus interest. The interest is calculated as (Principal x Rate x Time), where Rate is the annual interest rate and Time is the fraction of a year the note was held. In this case, Rate is 10% and Time is 60/360 = 1/6. Therefore, Interest = ($7,800 x 0.1 x 1/6) = $130. Adding the interest to the principal gives a total amount due of $7,930.

Question 3

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

Accepted Answer

The Allowance for Doubtful Accounts is a contra asset account that is used to estimate and record the amount of accounts receivable that are unlikely to be collected. It is not a liability account, as it does not represent an obligation to pay a debt. Instead, it is used to reduce the value of accounts receivable on the balance sheet, in order to reflect the expected losses due to uncollectible accounts. The account is debited when uncollectible accounts are written off, which reduces the balance of the allowance. It is credited when bad debts expense is estimated and recorded, which increases the balance of the allowance.

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

Question 5

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

We need to calculate the accrued interest for 45 days (from October 17 to December 31). To do this, we first need to calculate the total amount of interest for the 90-day period:

Interest = Principal x Rate x Time
Interest = $4,800 x 0.10 x 90/360
Interest = $120

Since the note has been outstanding for only 45 days, the accrued interest will be half of the total interest:

Accrued interest = $120/2
Accrued interest = $60

The entry to record the accrued interest on December 31 will be:

Debit Interest Receivable $60 (to record the accrued interest)
Credit Interest Revenue $60 (to recognize the interest revenue)

Therefore, option C is the correct answer.

Question 6

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

Question 7

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 answer of On July 9, Mifflin Company receives an...

Question 8

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

Since the customer is settling an account, the entry should involve both the Note Receivable and the Accounts Receivable accounts. The note itself is a promise to pay, so it should be recorded as a Note Receivable. However, since it is payment for an account, the amount should also be credited to Accounts Receivable. In this case, the interest is not yet earned, so no entry should be made for it until it is actually earned. Therefore, choice C is the correct entry to make on November 1.

Question 9

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 1- 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 total amount due, which includes the principal and interest, and crediting Notes Receivable for the principal and Interest Revenue for the interest.

Question 10

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 answer of On July 9, Mifflin Company receives an...

Question 11

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

When a customer pays with a credit card, the business receives the sales amount minus the credit card processing fee. In this case, Brinker accepts First Savings Bank's credit card, which assesses a 2.5% charge on sales for using its card. Therefore, Brinker will receive $4,800 - ($4,800 x 2.5%) = $4,680.

The entry to record this deposit would be to debit Cash for $4,680 (the amount received), debit Credit Card Expense for $120 (the processing fee), and credit Sales for $4,800 (the original sales amount).

Option A is incorrect because it does not account for the credit card processing fee. 
Option B is incorrect because it assumes accounts receivable were used to record the sale. 
Option C is incorrect because it does not account for the credit card processing fee. 
Option D is incorrect because it does not account for the credit card processing fee.

Question 12

On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

Accepted Answer

The answer of On February 1, a customer's account balance...

Question 13

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

Jervis needs to record the actual amount received, which is $3,395 ($3,500 - 3% charge of $105). Jervis also needs to record the credit card expense of $105. Therefore, the entry should be a debit to Cash for $3,395, a debit to Credit Card Expense for $105, and a credit to Sales for $3,500.

Question 14

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 15

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. The adjusting entry is to debit Bad Debts Expense and credit Allowance for Doubtful Accounts for $21,000.

Question 16

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

The answer of Jervis sells $75,000 of its accounts receivable...

Question 17

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 answer of On November 19, Nicholson Company receives a...

Question 18

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 19

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 20

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 answer of Uniform Supply accepted a $4,800, 90-day, 10%...

Quiz 9: Accounting for Receivables