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Exam 9: Receivables

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Question 41

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Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before adjustment) . The company prepares an analysis of customers' accounts to estimate the amount of uncollectible accounts of $41,900. Which of the following adjusting entries would be made to record the bad debt expense for the year?

A) debit Allowance for Doubtful Accounts, $40,600; credit Bad Debt Expense, $40,600
B) debit Allowance for Doubtful Accounts, $43,200; credit Bad Debt Expense, $43,200
C) debit Bad Debt Expense, $43,200; credit Allowance for Doubtful Accounts, $43,200
D) debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600

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Question 42

Multiple Choice

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Match each description to the appropriate term (a-d) . Each term may be used more than once. -This method estimates the uncollectible accounts receivable at the end of the accounting period.

A) Direct write-off method
B) Aging of receivables method
C) Percent of sales method
D) Allowance method

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Question 43

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At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The credit sales for the period total $500,000. If the company estimates uncollectible accounts expense at 1% of credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.

Discount Mart utilizes the allowance method of accounting for uncollectible receivables. On December 12, the company receives a $550 check from Chad Thomas in settlement of Thomas's $1,100 outstanding accounts receivable. Due to Thomas's failing health, he is closing his company and is expecting to make no further payments to Discount Mart. Journalize this transaction.

Interest on a note can be calculated without knowledge of the

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the amount of the adjustment when applying

Match each description to the appropriate term (a-d) . Each term may be used more than once. -With this method, there is no allowance account.

Determine the amount to be added to Allowance for Doubtful Accounts in each of the following cases and indicate the ending balance in each case. (a)Credit balance of $300 in Allowance for Doubtful Accounts just prior to adjustment. Analysis of Accounts Receivable indicates uncollectible receivables of $8,500. (b)Credit balance of $500 in Allowance for Doubtful Accounts just prior to adjustment. Uncollectible receivables are estimated at 2% of credit sales, which totaled $1,000,000 for the year.

Discuss the (a) focus and (b) financial statement emphasis of the percent of sales and the analysis of receivables methods of estimating bad debts.

The maturity value of a note receivable is always the same as its face value.

Match each description to the appropriate term (a-i) . -Amounts owed by customers documented by a formal written instrument of credit

Lone Star Company received a 90-day, 6% note for $80,000, dated March 12 from a customer on account. (Assume a 360-day year when calculating interest.) (a)Determine the due date of the note. (b)Determine the maturity value of the note. (c)Journalize the entry to record the receipt of the payment of the note at maturity.

When using the analysis of receivables method for estimating uncollectible receivables, the amount computed in the analysis is usually the amount that would be recorded in the end-of-period adjusting entry.

If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.

When accounting for uncollectible receivables and using the percentage of sales method, the matching principle is violated.

Discuss the two methods for recording bad debt expense. What type of company uses each method?

The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off since the beginning of the year.

On the basis of the following data related to assets due within one year for Webb Co., prepare a partial balance sheet in good form at December 31. Show total current assets. $\begin{array} { l r } \text { Cash } & \$ 96,000 \\\text { Notes receivable } & 50,000 \\\text { Accounts receivable } & 275,000 \\\text { All owance for doubtful accounts } & 40,000 \\\text { Interest receivable } & 1,000\end{array}$

Based on the following data and using a 365-day year, compute (a) the accounts receivable turnover and (b) days' sales in receivables for Year 2. Round to two decimal places. The industry average turnover is 20 times during the year, and the days' sales in receivables averages 25. (c) Comment on this situation. $\begin{array}{lr}12 / 31 / \text { Year } 1 \text { accounts receivable } & 100,000 \\12 / 31 / \text { Year } 2 \text { accounts receivable } & 70,000 \\\text { For the year ended } 12 / 31 / \text { Year } 1 \text {, sales } & 1,050,000 \\\text { For the year ended } 12 / 31 / \text { Year } 2 \text {, sales } & 1,200,000\end{array}$