Question 1

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?
A) $\begin{array}{|l|c|c|}
\hline \text { Bad Debt Expense } & 15,750 & \
\hline \text { Allowance for Doubtful Accounts } & & 15,750 \
\hline
\end{array}$

B) $$\begin{array} { |l | r | r | } 
\hline \text { Bad Debt Experse } & 15,575 & \
\hline \text { Allowance for Doubtful Accounts } & & 15,575 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Bad Debt Experse } & 15,925 & \
\hline \text { Allowance for Doubtful Accounts } & & 15,925 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 15,750 & \
\hline \text { Bad Debt Expense } & 175 & \
\hline \text { Sales } & & 15,925 \
\hline
\end{array}$$
E) $\begin{array}{|l|c|c|}
\hline \text { Accounts Receivable } & 15,925 & \
\hline \text { Allowance for Doubtful Accounts } & & 15,925 \
\hline
\end{array}$

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 needs to add this to the estimated uncollectible amount, resulting in a total adjustment of $15,925 ($15,750 + $175).

Question 2

Temper Company has credit sales of $3.10 million for year 2013.Accounts Receivable total $947,360 and the company estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575.Temper prepared a schedule of its December 31,2013,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:
$\begin{array}{ccc}
\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\
 \$620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
 49,600 & 31 \text { to } 60 \text { dlays past due } & 6.30 \
 24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$ 
Assuming the company uses the percent of accounts receivable method,what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?
A) $18,947.20
B) $16,372.20
C) $23,024.40
D) $27,900.00
E) $21,522.20

Accepted Answer

The estimated uncollectible amount is calculated by applying the expected percent uncollectible to each age category and summing the results:  - Not yet due: $620,000 * 1.05% = $6,510  - 1 to 30 days past due: $248,000 * 1.80% = $4,464  - 31 to 60 days past due: $49,600 * 6.30% = $3,124.80  - 61 to 90 days past due: $24,800 * 31.75% = $7,882  - Over 90 days past due: $4,960 * 66.00% = $3,273.60  Total estimated uncollectible = $25,254.40.  The Allowance for Doubtful Accounts has an unadjusted debit balance of $2,575, so the required adjustment is $25,254.40 - $2,575 = $22,679.40.  However, the closest option to this calculation is $21,522.20, which suggests a possible error in the provided options or calculations.

Question 3

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?
A) $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable - J. Klemper } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$

B) $$\begin{array} { | c | r | r | } 
\hline \text { Note Receivable } & \mathbf { 8 , 0 0 0 } & \
\hline \text { Sales } & & \mathbf { 8 , 0 0 0 } \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } &  8 , 0 0 0 & \
\hline \text { Sales } & & 13,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,000 & \
\hline \text { Note Receivable } & 8 , 0 0 0 & \
\hline \text { Account Receivable -J. Klemper } & & 13,000 \
\hline
\end{array}$$
E) $\begin{array}{|l|l|l|}
\hline \text { Sales } & 13,000 & \
\hline \text { Note Receivable } & & 8,000 \
\hline \text { Cash } & & 5,000 \
\hline
\end{array}$

Accepted Answer

The answer of Wallah Company agreed to accept $5,000 in...

Question 4

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:
A) Direct write-off method.
B) Aging of accounts receivable method.
C) Percent of sales method.
D) Aging of investments method.
E) Percent of accounts receivable method.

Accepted Answer

The method described is the Aging of accounts receivable method, which involves analyzing outstanding accounts by age to estimate the portion that is likely to become uncollectible. This method provides a more accurate estimate of bad debts expense than the Percent of sales or Percent of accounts receivable methods. The Direct write-off method is not a recommended method of estimating bad debts expense because it violates the matching principle of accounting. The Aging of investments method is not relevant to estimating bad debts expense.

Question 5

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:
A) $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable } & 5,000 & \
\hline \text { Sales } & & 5,000 \
\hline
\end{array}$

B) $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 5,000 & \
\hline \text { Sales } & & 5,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 5,125 & \
\hline \text { Sales } & & 5,125 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 5,125 & \
\hline \text { Sales } & & 5,125 \
\hline
\end{array}$$
E) $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 5,000 & \
\hline \text { Interest Receivable } & 125 & \
\hline \text { Sales } & & 5,125 \
\hline
\end{array}$$

Accepted Answer

The journal entry for TechCom would be a debit to Accounts Receivable for $5,500 (which includes the $5,000 merchandise plus the 10% interest) and a credit to Sales for $5,000 and Interest Receivable for $500. The correct journal entry is shown in option B.

Question 6

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?
A) $951
B) $3,992
C) $4,884
D) $5,835
E) $6,786

Accepted Answer

11ea8897_df11_b406_a96f_39d2b46c4126_TB6312_00_TB6312_00_TB6312_00

Question 7

Mix Recording Studios purchased $7,800 in electronic components from TechCom.Mix Recording Studios signed a 60-day,10% promissory note for $7,800.TechCom's journal entry to record the sales portion of the transaction is:
A) $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$

B) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Sales } & & 7,800 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Notes Receivable } & 7,930 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$
E) $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 7,800 & \
\hline \text { Interest Receivable } & 130 & \
\hline \text { Sales } & & 7,930 \
\hline
\end{array}$$

Accepted Answer

The correct entry records the note as a Notes 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.

Question 8

When the maker of a note honors a note this indicates that the note is:
A) Signed
B) Paid in full
C) Guaranteed
D) Notarized
E) Cosigned

Accepted Answer

When the maker of a note honors a note, it means they have paid it in full.

Question 9

Failure by a promissory note's maker to pay the amount due at maturity is known as:
A) Protesting a note
B) Closing a note
C) Dishonoring a note
D) Discounting a note
E) Depreciating a note

Accepted Answer

Dishonoring a note occurs when the maker of a promissory note fails to pay the amount due at maturity. Protesting a note is the formal process of recording the dishonor of a negotiable instrument, closing a note is not a common term used in this context, discounting a note refers to the process of selling a promissory note to a third party at a discount, and depreciating a note refers to a decrease in the value of the promissory note.

Question 10

According to GAAP,the amount of bad debt expense can be estimated by:
A) Only the percent of sales method.
B) Only the percent of accounts receivable method.
C) Only by the aging of accounts receivable method.
D) Only by the percent of sales method or the percent of accounts receivable method.
E) Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method.

Accepted Answer

Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method, according to GAAP. Therefore, the best answer is E.

Question 11

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?
A) $925
B) $1,225
C) $4,200
D) $4,500
E) $45,000

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 12

Temper Company has credit sales of $3.10 million for year 2013.Temper estimates that .9% of the credit sales will not be collected.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222.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?
A) $25,246.40
B) $27,468.40
C) $23,024.40
D) $27,900.00
E) $24,420.40

Accepted Answer

$3,100,000 x .009 = $27,900.00

Question 13

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?
A) $$\begin{array} { | l | c | c | } 
\hline \text { Bad Debt Expense } & 36,090 & \
\hline \text { Allowance for Doubtful Accounts } & & \mathbf { 3 6 , 0 9 0 } \
\hline
\end{array}$$
B) $$\begin{array} { | l | c | c | } 
\hline \text { Bad Debt Expense } & 42,660 & \
\hline \text { Allowance for Doubtful Accounts } & & 42,660 \
\hline
\end{array}$$
C) $\begin{array}{|l|r|r|}
\hline \text { Bad Debt Expense } & 39,375 & \
\hline \text { Allowance for Doubtful Accounts } & & 39,375 \
\hline
\end{array}$

D) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 39,375 & \
\hline \text { Bad Debt Expense } & 3,285 & \
\hline \text { Sales } & & 42,660 \
\hline
\end{array}$$
E) $\begin{array}{|l|r|r|}
\hline \text { Accounts Receivable } & 36,090 & \
\hline \text { Allowance for Doubtful Accounts } & & 36,090 \
\hline
\end{array}$

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 adjustment needed is $39,375 - $3,285 = $36,090.

Question 14

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:
A) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable - P. Best } & 3,000 & \
\hline \text { Allowance for Doubtful Accounts } & & 3 , 0 0 0 \
\hline \text { Cash } & 3,000 & \
\hline \text { Accounts Receivable - P. Best } & &  3 , 0 0 0 \
\hline
\end{array}$$
B) $\begin{array}{|l|r|r|}
\hline \text { Cash } & 3,000 & \
\hline \text { Bad Debts Expense } & & 3,000 \
\hline
\end{array}$

C) $\begin{array}{|l|r|r|}
\hline\text { Accounts Receivable - P. Best } & 3,000 & \
\hline \text { Bad Debts Expense } & & 3,000 \
\hline \text { Cash } & 3,000 & \
\hline \text { Accounts Receivable - P. Best } & & 3,000\
\hline
\end{array}$

D) $\begin{array}{|l|l|l|}
\hline\text { Allowance for Doubtful Accounts } & 3,000 & \
\hline \text { Accounts Receivable-P. Best } & & 3,000 \
\hline \text { Accounts Receivable-P. Best } & 3,000 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$

E) $\begin{array}{|l|r|r|}
\hline \text { Cash } & 3,000 & \
\hline \text { Accounts Receivable - P. Best } & & 3,000 \
\hline
\end{array}$

Accepted Answer

When an uncollectible account is written off, the allowance for doubtful accounts is debited and accounts receivable is credited. When the account is later collected, accounts receivable is debited and cash is credited.

Question 15

The amount due on the date of maturity for a $6,000,60-day,8%,note receivable is:
A) $6,000
B) $6,480
C) $5,520
D) $6,080
E) $5,920

Accepted Answer

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

Question 16

Teller,a calendar year company,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,assuming an adjusting entry for interest was made for interest on December 31?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Notes Receivable } & 4,800 & \
\hline \text { Interest Receivable } & 120 & \
\hline \text { Sales } & & 4,920 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Notes Receivable } & & 4,920 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 100 \
\hline \text { Interest Receivable } & & 20 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 20 \
\hline \text { Interest Receivable } & & 100 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$
E) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,920 & \
\hline \text { Interest Revenue } & & 120 \
\hline \text { Notes Receivable } & & 4,800 \
\hline
\end{array}$$

Accepted Answer

TechCom would have recorded $100 as interest receivable on December 31. On January 15, they receive $4,920 in cash, which includes $4,800 principal and $120 interest ($100 already recorded as receivable and $20 as revenue for January).

Question 17

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:
A) Allowance method of accounting for bad debts.
B) Aging of notes receivable.
C) Adjustment method for uncollectible debts.
D) Direct write-off method of accounting for bad debts.
E) Cash basis method of accounting for bad debts.

Accepted Answer

The allowance method is the accounting procedure that estimates and reports bad debts expense from credit sales during the period of the sales and reports accounts receivable at the amount of cash to be collected. This method is considered more accurate and realistic compared to the direct write-off method because it recognizes the possibility of bad debts and estimates an allowance for them. The aging of notes receivable and adjustment method for uncollectible debts are not specific methods for accounting for bad debts, while the cash basis method is not a generally accepted accounting principle.

Question 18

Temper Company has credit sales of $3.10 million for year 2013.Temper estimates that .9% of the credit sales will not be collected.On December 31,2013,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222.Temper prepares a schedule of its December 31,2013,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:
$\begin{array}{ccc}
\text { December } 31,2013 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\
 \$620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
 49,600 & 31 \text { to } 60 \text { dlays past due } & 6.30 \
 24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$
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?
A) $25,246.40
B) $27,468.40
C) $23,024.40
D) $27,900.00
E) $24,420.40

Accepted Answer

The answer of Temper Company has credit sales of $3.10...

Question 19

Electron borrowed $75,000 cash from TechCom by signing a promissory note.TechCom's entry to record the transaction should include a:
A) Debit to Notes Receivable for $75,000.
B) Debit to Accounts Receivable for $75,000.
C) Credit to Notes Receivable for $75,000.
D) Debit Notes Payable for $75,000.
E) Credit to Sales for $75,000.

Accepted Answer

Since Electron is the borrower, TechCom is the lender, and the agreement was made through a promissory note, the appropriate account to debit would be Notes Receivable for the principal amount borrowed of $75,000.

Question 20

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?
A) $1,245.00
B) $3,551.60
C) $4,796.60
D) $2,306.60
E) $87,545.00

Accepted Answer

11ea8897_df11_db17_a96f_9fe8fd0e2980_TB6312_00_TB6312_00_TB6312_00

Quiz 7: Accounts and Notes Receivable

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?

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:

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:

Mix Recording Studios purchased $7,800 in electronic components from TechCom.Mix Recording Studios signed a 60-day,10% promissory note for $7,800.TechCom's journal entry to record the sales portion of the transaction is:

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

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

According to GAAP,the amount of bad debt expense can be estimated by:

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

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:

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