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Exam 9: Accounting for Receivables

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Question 51

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The allowance method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

A) True
B) False

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Question 52

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Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

A) $\begin{array} { | l | r | r | } \hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable -A. Hopkins } & & 2,000 \\\hline\end{array}$
B) $\begin{array} { | l | r | r | } \hline \text { Allowance for Doubtful Accounts } & 2,000 & \\\hline \text { Accounts Receivable -A. Hopkinse } & & 2,000 \\\hline \text { Accounts Receivable -A. Hopkins } & 2,000 & \\\hline \text { Cash } & & 2,000 \\\hline\end{array}$
C) $\begin{array} { | l | r | r | } \hline \text { Accounts Receivable -A. Hopkins } & 2,000 & \\\hline \text { Allowance for Doubtful Accounts } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable -A. Hopkins } & & 2,000 \\\hline\end{array}$
D) $\begin{array} { | l | r | r | } \hline \text { Cash } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline\end{array}$
E) $\begin{array} { | l | r | r | } \hline \text { Accounts Receivable -A. Hopkins } & 2,000 & \\\hline \text { Bad debts expense } & & 2,000 \\\hline \text { Cash } & 2,000 & \\\hline \text { Accounts Receivable -A. Hopkins } & & 2,000 \\\hline\end{array}$

F) A) and C)
G) B) and E)

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Question 53

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Separate accounts receivable information for each customer is important because it reveals all of the following except:

A company that uses the percent of sales to account for its bad debts had credit sales of $740,000 in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company wrote off, as uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2, Marshall Fresh unexpectedly paid his account in full. Prepare the necessary journal entries: (a) On December 31, Year 1, to reflect the estimate of bad debts expense. (b) On June 1, Year 2, to write off the bad debt. (c) On December 21, Year 2, to record the unexpected collection.

A company allows its customers to use bank credit cards to charge purchases. When customers use the credit cards, the net amount is deposited in the company's checking account, less a 2.5% service charge. Assume that on April 13, the company sold $20,000 worth of merchandise to customers who used credit cards. Prepare the company's journal entry to record the credit card sales for April 13 assuming the company deposited the receipts that same day.

The expense recognition (matching) principle requires use of the allowance method of accounting for bad debts.

The allowance method based on the idea that a given percent of a company's credit sales for the period is uncollectible is:

Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60- 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.)

When the maker of a note is unable or refuses to pay at maturity, the note is said to be ________.

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?

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: Accounts receivable $375,000 debit Allowance for uncollectible accounts 500 debit Net Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging.

At December 31 of the current year, a company reported the following: Total sales for the current year: $980,000 includes $160,000 in cash sales Accounts receivable balance at Dec. 31, end of current year: $160,000 Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300 Bad debts written off during the current year: $5,800. Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 1.5% of credit sales:

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. -Food Supplier's journal entry to record the sales transaction is:

The following data are taken from the comparative balance sheets of Grayling Company. Compute and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How is the company doing in relation to its competitors? $\begin{array} { l l l } & \text { Year 2 } & \text { Year } 1 \\\text { Accounts receivable, net } & 180,230 & 220,450 \\\text { Net sales } & 1,500,750 & 1,495,600\end{array}$

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. - Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

A company using the percentage of sales method for estimating bad debts has sales of $350,000 and estimates that 1.0% of its sales are uncollectible. The unadjusted balance in Allowance for Doubtful Accounts is a $300 credit. The estimated amount of bad debts expense is $3,200

Converting receivables to cash before they are due is usually done by either (1) __________ or (2)________.

Installment Accounts Receivable are classified as non-current assets if the installment period is more than one year, even if the seller regularly offers customers such terms.