Question 1

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

To determine the amount that should be debited to Bad Debts Expense, we need to calculate the estimated uncollectible amount based on 6% of the outstanding Accounts Receivable balance at the end of the year.

Outstanding Accounts Receivable balance = $97,250 
Estimated uncollectible amount = 6% x $97,250 = $5,835

Next, we need to make an adjusting entry to debit Bad Debts Expense for $5,835 and credit Allowance for Doubtful Accounts for the same amount. However, we already have a credit balance of $951 in the Allowance for Doubtful Accounts account, which means that we only need to increase it by the difference between the estimated uncollectible amount and the existing credit balance.

$5,835 - $951 = $4,884

Therefore, the amount that should be debited to Bad Debts Expense is $4,884 (Choice C).

Question 2

Teller 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?

Accepted Answer

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

Question 3

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?

Accepted Answer

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

Question 4

On October 29 of the current year, a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?

Accepted Answer

Under the allowance method, bad debts expense has already been estimated and recorded, affecting net income in the period the estimate was made. The write-off of an actual account receivable against the allowance for doubtful accounts does not affect net income further nor does it change the total assets, as it merely adjusts two balance sheet accounts against each other (reducing both accounts receivable and the allowance for doubtful accounts by the same amount).

Question 5

Temper Company has credit sales of $3.10 million for year 2010. Temper estimates that .9% of the credit sales will not be collected. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222. Temper prepares a schedule of its December 31, 2010, 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:
$\begin{array}{rlr}\text { December } 31,2010 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\
\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \
24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$

Assuming the company uses the percent of sales method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Accepted Answer

The Bad Debt Expense using the percent of sales method is calculated as 0.9% of the credit sales. Therefore, $3,100,000 * 0.009 = $27,900.00.

Question 6

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:

Accepted Answer

The description given in the question matches with the allowance method of accounting for bad debts. This method uses an estimate of the total amount of bad debts to create a contra-asset account called allowance for doubtful accounts. The estimate is typically based on a percentage of credit sales or aging of accounts receivable. This method is generally preferred over the direct write-off method as it provides a more accurate representation of accounts receivable and makes it easier to track bad debts. The aging of notes receivable and adjustment method for uncollectible debts are not relevant to the given scenario. The direct write-off method of accounting for bad debts and cash basis method of accounting for bad debts do not report bad debts expense from credit sales during the period of the sales.

Question 7

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

Accepted Answer

When Electron borrowed $75,000 cash from TechCom by signing a promissory note, TechCom's entry to record the transaction should include a debit to Notes Receivable for $75,000 as they have loaned the money and have the right to receive it back. Notes Receivable is an asset account that represents the amount of money owed to TechCom by the borrower. Therefore, the correct option is A.

Question 8

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

The transaction involves a promissory note, which is recorded as a Notes Receivable, not Accounts Receivable. The amount is $7,800, which is the principal of the note, without interest at this point.

Question 9

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

Accepted Answer

The answer of The amount due on the date of...

Question 10

The amount of bad debt expense can be estimated by:

Accepted Answer

The answer of The amount of bad debt expense can...

Question 11

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:

Accepted Answer

The correct entries to record the recovery of a bad debt under the allowance method are to first reverse the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts, and then record the cash receipt by debiting Cash and crediting Accounts Receivable.

Question 12

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

Accepted Answer

Dishonoring a note refers to the failure of the maker of a promissory note to pay the amount due at maturity, which is a breach of the contract.

Question 13

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?

Accepted Answer

The bad debts expense is calculated as 0.5% of net sales: $900,000 * 0.5% = $4,500.

Question 14

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, indicating that there is no longer any debt owed on the note.

Question 15

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?

Accepted Answer

First, we need to find the amount of uncollectible accounts:
$88,790 x 4% = $3,551.60

Next, we need to adjust the Allowance for Doubtful Accounts by this amount:
$1,245 + $3,551.60 = $4,796.60

Finally, we need to record the expense by debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts:
Bad Debts Expense debit: $3,551.60 
Allowance for Doubtful Accounts credit: $3,551.60 
Therefore, the amount to be debited to Bad Debts Expense is $3,551.60, which is option D.

Question 16

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?

Accepted Answer

Wallah Company should record the receipt of cash and the note receivable as debits and remove the accounts receivable from Judith Klemper as a credit, reflecting the settlement of her past-due account.

Question 17

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 answer of Paoli Pizza bought $5,000 worth of merchandise...

Question 18

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

Accepted Answer

The aging of accounts receivable method involves examining outstanding accounts and categorizing them by length of time past due. This provides a more accurate estimate of bad debt expense than the percentage of sales method or the direct write-off method. The aging of investments method is not relevant to estimating bad debts expense, and the percent of accounts receivable method is not a commonly used method.

Question 19

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 company needs to adjust the Allowance for Doubtful Accounts to reflect the estimated uncollectible amount of $15,750. Since the allowance account has a debit balance of $175, the company must record an additional $15,925 ($15,750 + $175) as Bad Debt Expense to bring the allowance account to the correct credit balance.

Question 20

Temper Company has credit sales of $3.10 million for year 2010. Temper estimates that .9% of the credit sales will not be collected. On December 31, 2010, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222. Temper prepares a schedule of its December 31, 2010, 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:
$\begin{array}{rlr}\text { December } 31,2010 & \text { Age of Accounts } & \text { Expected Percent } \
\text { Accounts Receivable } & \text { Receivable } & \text { Uncollectible }\
\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to } 30 \text { days past due } & 1.80 \
49,600 & 31 \text { to } 60 \text { days past due } & 6.30 \
24,800 & 61 \text { to } 90 \text { days past due } & 31.75 \
4,960 & \text { Over } 90 \text { days past due } & 66.00
\end{array}$
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?

Accepted Answer

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

Quiz 7: Accounts and Notes Receivable