Question 1

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 .5% of sales, what is the amount of the bad debts expense adjusting entry?

Accepted Answer

$925,000 * 0.005 = $4,625

Question 2

A company uses 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:  All sales are made on credit. Based on past experience, the company estimates 0.6% 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 that 0.6% of credit sales will be uncollectible, and total credit sales for the year were $800,000. Therefore, the estimated bad debts expense is 0.6% x $800,000 = $4,800. This amount should be recorded as a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts in order to properly account for potential uncollectible accounts receivable. Choice D is the only option that matches this amount.

Question 3

The Allowance for Doubtful Accounts:

Accepted Answer

The answer of The Allowance for Doubtful Accounts:
...

Question 4

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 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 answer of A company ages its accounts receivables to...

Question 6

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

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

Question 7

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

The entry should debit cash for the amount actually received, which is $4,800 minus the 3.5% charge. The credit card expense should be debited for the amount of the charge, and the remaining amount should be credited to sales. Therefore, the entry is: Debit Cash $4,632 (=$4,800 - 3.5%*$4,800); Debit Credit Card Expense $168 (=$4,800*3.5%); Credit Sales $4,800.

Question 8

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 9

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 10

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 11

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 that they have paid it in full. Therefore, option B is the best answer. Signed (A), guaranteed (C), notarized (D), and cosigned (E) do not accurately describe what it means for the maker to honor a note.

Question 12

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

Accepted Answer

Dishonoring a note is when the maker of the promissory note fails to pay the amount due at maturity, which is a breach of the agreement.

Question 13

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

To record the accrued interest on the note, TechCom should debit Interest Receivable (an asset account) for $100 and credit Interest Revenue (a revenue account) for $100. This represents the interest earned on the note for three months, calculated as follows:

$4,800 x 10% x 90/360 = $120 
$120 x 3/12 = $30 per month 
$30 x 3 = $90 (rounded)

Therefore, the entry on December 31 should be:

Debit Interest Receivable $100 
Credit Interest Revenue $100

Question 14

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 15

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

First, we need to calculate the amount of uncollectible accounts. 6% of $97,250 is $5,835. 
Next, we calculate the required balance for Allowance for Doubtful Accounts. The current balance is $951, so we need to increase it to $5,835. 
To do this, we need to debit the Allowance for Doubtful Accounts account by $4,884 ($5,835 - $951 = $4,884). 
Finally, we need to record the expense for the period by debiting Bad Debts Expense for $4,884. Therefore, the answer is C.

Question 16

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

Question 17

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

Question 18

A company uses 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:  All sales are made on credit. Based on past experience, the company estimates 0.6% 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 answer of A company uses the percent of sales...

Question 19

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, the amount due will be the original amount plus the interest for the entire 60-day period. Interest for 60 days at 10% per year is $130 ($7,800 x 0.10 x 60/365). Therefore, the total amount due on the note is $7,930 ($7,800 + $130).

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

TechCom's journal entry would be to debit Notes Receivable $7,800 and credit Sales $7,800. This is because MixRecording Studios signed a promissory note, which means TechCom is essentially making a loan to the customer and will collect payment in the future. The amount of the note (principal) is what would be recorded in the Notes Receivable account, and the corresponding revenue from the sale is recorded in the Sales account. No additional interest would be recorded at this point, as the interest revenue will be recognized when the note is paid off.

Quiz 9: Accounting for Receivables