ACCT 2301 Chapter 7 SB - Homework assignment PDF

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(BAD DEBTS) are accounts of customers who do not pay what they have promised to pay. It’s considered an expense of selling on credit. A ___________ is an amount due from another party. RECEIVABLE A company sells merchandise to a customer on credit. The journal entry that the company makes to record this sale would include a (CREDIT) to the sales account. A(n) ___________ is a supplementary record created to maintain a separate account for each customer. ACCOUNTS RECEIVABLE LEDGER A. Stine Co. previously wrote off a $200 bad debt from Thorn Co. using the direct write-off method. On October 1, Stine unexpectedly receives a check in the amount of $200 from Thorn Co. The entry to record this receipt of $200 will include a: DEBIT TO CASH; CREDIT TO BAD DEBT EXPENSE Acel Co. uses the allowance method to account for bad debts. Early in 2010, Acel determined that it could not collect $400 from CTR, Inc. and wrote the balance off. On October 21, Acel received a check for $400 form CTR. The entries to record the receipt of cash on October 21 would include a debit to: CASH; ACCOUNTS RECEIVABLE An accounts receivable ledger: IS A SUPPLEMENTARY RECORD TO MAINTAIN AN ACCOUNT FOR EACH CUSTOMER; RECORDS JOURNAL ENTRIES THAT AFFECT ACCOUNTS RECEIVABLE Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana’s unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of: $500 At year-end, Avis Company estimates that $2,000 of its accounts receivable balance is uncollectible. Avis uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a credit to: ALLOWANCE FOR DOUBTFUL ACCOUNTS Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a debit to: ALLOWANCE FOR DOUBTFUL ACCOUNTS Bad debts are: AN EXPENSE OF SELLING ON CREDIT; ALSO CALLED UNCOLLECTIBLE ACCOUNTS; ACCOUNTS OF CUSTOMERS WHO DO NOT PAY Companies allow customers to pay for products using third-party credit cards because: CASH IS RECEIVED FROM THE CREDIT CARD COMPANY FASTER THAN FROM A CREDIT CUSTOMER; A VARIETY OF PAYMENT OPTIONS TYPICALLY INCREASE SALES VOLUME; THE SELLER DOES NOT HAVE TO EVALUATE CUSTOMER CREDIT; THE SELLER DOES NOT HAVE TO EVALUATE CUSTOMER CREDIT; THE SELLER AVOIDS THE RISK OF CUSTOMER NON-PAYMENT Companies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include: TO REDUCE RISK OF NONPAYMENT; TO QUICKLY GENERATE CASH

Conroy Company uses the allowance method to account for bad debts. During 2010, Conroy determined that a balance of $200 for Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry? $0 Finish Co. uses the allowance method to account for bad debts. At the end of 2010, Finish Co.’s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of: $6,000 In August, Johns Co.’s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the (BAD DEBTS EXPENSE) account before recording a debit to the Cash account. Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal. DEBIT TO CASH; CREDIT TO ACCOUNTS RECEIVABLE JD Co. had $1,000 of credit card sales. The net cash receipts were deposited immediately into JD Company’s bank account less a 3% fee. The entry to record this sales transaction would include the following debit entries. CREDIT CARD EXPENSE FOR $30; CASH FOR $970 Lani Co. uses the allowance method to account for bad debts. At the end of the year their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of: $4,400 Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.’s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimated that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of: $400 On August 1, Harris Co. determines that it cannot collect $200 from its customer, L. Dash. Harris Co. uses the direct write-off method, so they will record the write-off of this account by debiting: BAD DEBT EXPENSE On December 31, DVS Company estimates that $2,500 of its accounts receivable balance is uncollectible. DVS uses the allowance method to account for bad debts. The entry to record this adjusting entry would include a: CREDIT TO ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR $2,500; DEBIT TO BAD DEBTS EXPENSE FOR $2,500 On December 31, Lee Company estimates that $1,000 of its accounts receivable balance is uncollectible. Lee Company uses the allowance method to account for bad debts. The adjusting entry to record this estimate will include a credit to: ALLOWANCE FOR DOUBTFUL ACCOUNTS On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a: DEBIT TO BAD DEBTS EXPENSE; CREDIT TO ACCOUNTS RECEIVABLE—A. WINDS

On July 10, Yao Co. collects $740 from Ean, Inc. from a prior credit sale. This entry would be recorded by Yao with a: DEBIT TO CASH; CREDIT TO ACCOUNTS RECEIVABLE P. Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller’s bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a: CREDIT TO SALES FOR $500; DEBIT TO CASH FOR $480; DEBIT TO CREDIT CARD EXPENSE FOR $20 The (AGING) of accounts receivable method uses several percentages to estimate the allowance. The (ALLOWANCE) method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce. The (MATERIALITY) constraint permits the use of the direct write-off method when its results approximate that of the allowance method. The ___________ constraint permits the use of the direct write-off method when its results approximate those using the allowance method. MATERIALITY The ___________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense. DIRECT WRITE-OFF The ____________ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date. AGING OF RECEIVABLES The advantages of using the allowance method to account for bad debts include which of the following? MATCHES EXPENSES WITH RELATED SALES; REPORTS ACCOUNTS RECEIVABLE BALANCE AT NET REALIZABLE VALUE The allowance for doubtful accounts is a contra asset account that equals: TOTAL UNCOLLECTIBLE ACCOUNTS The allowance for doubtful accounts is a(n) (CONTRA) asset account and has a normal credit balance. The asset account that tracks “amounts due from customers for credit sales” is commonly called: ACCOUNTS RECEIVABLE The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method may not follow the ___________ principle. EXPENSE RECOGNITION The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method might violate the (EXPENSE RECOGNITION) principle. The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called: REALIZABLE VALUE

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called: REALIZABLE VALUE The two most common receivables are (ACCOUNTS) receivables and (NOTES) receivables. To record a customer’s check in full payment for a sale that was made the prior month, the company should debit the ___________ account. CASH To record a sale on account, the company should debit: ACCOUNTS RECEIVABLE True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determines to be uncollectible. No attempt is made to predict bad debts. FALSE True or false: The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them. TRUE Tunes Company determines that a customer balance of $250 from Able Co. is uncollectible. Tunes uses the allowance method to account for bad debts. The entry to write off the uncollectable balance will include a (DEBIT) to the Allowance for Doubtful Accounts. When a company makes a sale on credit, it records the amount due from the customer in __________. ACCOUNTS RECEIVABLE When an account previously written off is later collected, two journal entries are required. The first journal entry is to _______ the account, and the second journal entry is to record _______ of payment. REINSTATE; RECEIPT Woodstock Co. had $500 of credit cards sales. The net cash receipts were deposited immediately into Woodstock’s bank account less a 2% fee. The entry to record this sales transaction would include a credit to: SALES IN THE AMOUNT FOR $500 Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate’s unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of: $5,000...