Question 1

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

Accepted Answer

When the maker of a note honors it, they are paying it in full.

Question 2

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

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Question 3

Temper Company has credit sales of $3.10 million for year 2010.Temper estimates that .9% of the credit sales will not be collected.On December 31,2010,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222.Temper prepares a schedule of its December 31,2010,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:
$$\begin{array} { c l c } 
\begin{array} { c } 
\text { December 31, 2010 } \
\text { Accounts Receivable }
\end{array} &  { \begin{array} { c } 
\text { Age of Accounts } \
\text { Receivable }
\end{array} } & \begin{array} { c } 
\text { Expected Percent } \
\text { Uncollectible }
\end{array} \
\hline 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & \text { 1 to 30 days past due } & 1.80 \
49,600 & \text { 31 to 60 days past due } & 6.30 \
24,800 & \text { 61 to 90 days past due } & 31.75 \
4,960 & \text { Over 90 days past due } & 66.00
\end{array}$$ 
Assuming the company uses the aging 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 answer of Temper Company has credit sales of $3.10...

Question 4

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 additional amount needed is $39,375 - $3,285 = $36,090. Therefore, the correct adjusting entry is to debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $36,090.

Question 5

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 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 achieve the desired credit balance.

Question 6

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 outstanding accounts and their length of time past due to estimate the likelihood of each account becoming uncollectible. This provides a more accurate estimate of bad debts expense compared to other methods such as the percentage of sales method or direct write-off method.

Question 7

On October 29 of the current year,a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?

Accepted Answer

Under the allowance method, bad debts expense has already been estimated and recorded, affecting net income in the period the estimate was made. The write-off of an actual account receivable against the allowance for doubtful accounts does not affect net income further nor does it change the total assets, as it merely adjusts two balance sheet accounts against each other (reducing both accounts receivable and the allowance for doubtful accounts by the same amount).

Question 8

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

Accepted Answer

Interest: $6,000 x .08 x 60/360 = $80
Amount due at maturity = $6,000 + $80 = $6,080

Question 9

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 credit sales. Therefore, 0.5% of $900,000 is $4,500.

Question 10

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

When a previously written-off account is recovered, the first entry reinstates the account receivable by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts. The second entry records the receipt of cash by debiting Cash and crediting Accounts Receivable.

Question 11

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 receipt of cash and the note receivable as debits, and the settlement of the accounts receivable as a credit.

Question 12

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

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Question 13

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 the sales portion of the transaction would be:

Accounts Receivable: $5,500 (debit) 
Sales Revenue: $5,000 (credit)
Interest Revenue: $500 (credit)

Option A incorrectly debits Cash instead of Accounts Receivable. Option C incorrectly debits Sales Revenue instead of Accounts Receivable. Option D incorrectly credits Interest Payable instead of Interest Revenue. Option E incorrectly credits Cash instead of Sales Revenue.

Question 14

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 by the promissory note's maker to pay the amount due at maturity. Protesting a note is the act of officially noting a dishonor of a promissory note. Closing a note, discounting a note, and depreciating a note are not terms related to a promissory note's maturity and payment.

Question 15

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 based on credit sales during the period, and reports accounts receivable at the amount of cash expected to be collected. This method is preferable to the direct write-off method, which only recognizes bad debts at the time they are identified as uncollectible, and the cash basis method, which does not account for bad debts until they are actually paid or written off. The aging of notes receivable and adjustment method for uncollectible debts are not commonly used methods for estimating bad debts.

Question 16

The amount of bad debt expense can be estimated by:

Accepted Answer

Bad debt expense can be estimated using any of the three methods: the percent of sales method, the percent of accounts receivable method, and the aging of accounts receivable method.

Question 17

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

Accepted Answer

When a company lends money by issuing a promissory note, it records the amount as a Notes Receivable on its books. In this scenario, TechCom is the lender and Electron is the borrower. Therefore, TechCom should debit its Notes Receivable account to record the $75,000 loan. The other options are not relevant in this context.

Question 18

Teller 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?

Accepted Answer

The answer of Teller purchased merchandise from TechCom on October...

Question 19

Temper Company has credit sales of $3.10 million for year 2010.Temper estimates that .9% of the credit sales will not be collected.On December 31,2010,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222.Temper prepares a schedule of its December 31,2010,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:
$$\begin{array} { c l c } 
\begin{array} { c } 
\text { December 31,2010 } \
\text { Accounts Receivable }
\end{array} &{ \begin{array} { c } 
\text { Age of Accounts } \
\text { Receivable }
\end{array} } & \begin{array} { c } 
\text { Expected Percent } \
\text { Uncollectible }
\end{array} \
\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to 30 days past due } & 1.80 \
49,600 & 31 \text { to 60 days past due } & 6.30 \
24,800 & \text { 61 to 90 days past due } & 31.75 \
4,960 & \text { Over 90 days past due } & 66.00
\end{array}$$ 
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 percent of sales method calculates Bad Debt Expense as a percentage of total credit sales. Here, 0.9% of $3.10 million is $27,900.00.

Question 20

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

The correct entry records the note receivable for the principal amount of $7,800, which is the sales amount. Interest is not recorded at the time of sale but accrued over time.

Quiz 7: Reporting and Analyzing Receivables