Ch 8: Receivables (2 questions)
Quick Review of Allowance for Doubtful Accounts:
- Honors the matching principle
- You estimate a % or your Account Receivable won't be collectible
The allowance for doubtful accounts is written off at the end of the fiscal year.
False, its adjusted at the end of the year not written off
The direct write off method violates the matching principle? True
When an account is written off under the allowance method, the:
o Bad Debts Expense account is debited
o Accounts Receivable account is debited
o Allowance for Doubtful Accounts is debited
o Loss on Accounts Receivable account is debited
Smith Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $100,000 at year end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will have to be made if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
A Bad Debt Expense $3200
Allowance for Doubtful Accounts $3200
B. Bad Debt Expense $4000
Allowance for Doubtful Accounts $4000
C Bad Debt Expense $3200
Accounts Receivable $3200
D.Bad Debt Expense $4000
Accounts Receivable $4000
False, its adjusted at the end of the year not written off
The direct write off method violates the matching principle? True
When an account is written off under the allowance method, the:
o Bad Debts Expense account is debited
o Accounts Receivable account is debited
o Allowance for Doubtful Accounts is debited
o Loss on Accounts Receivable account is debited
Smith Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $100,000 at year end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will have to be made if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?
A Bad Debt Expense $3200
Allowance for Doubtful Accounts $3200
B. Bad Debt Expense $4000
Allowance for Doubtful Accounts $4000
C Bad Debt Expense $3200
Accounts Receivable $3200
D.Bad Debt Expense $4000
Accounts Receivable $4000
Steps To Solve:
1. Make a T Account for Allowance For Doubtful Accts
2. AR * % = 100,000*.04 = $4,000 uncollectible
(this is your balance at end of year)
3. In order to get $4,000 what do you need to add to
$800 (given in problem). Answer $3200
1. Make a T Account for Allowance For Doubtful Accts
2. AR * % = 100,000*.04 = $4,000 uncollectible
(this is your balance at end of year)
3. In order to get $4,000 what do you need to add to
$800 (given in problem). Answer $3200
Allowance for Doubtful Accounts is closed at the end of the fiscal year? False
Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method?
A. Accounts Receivable 100
Bad Debts Expense 100
B.Bad Debts Expense 100
Accounts Receivable 100
C.Allowance for Doubtful Accounts 100
Bad Debts Expense 100
D.Allowance for Doubtful Accounts 100
Accounts Receivable 100
Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?
A.$12,000 B.$7,000 C.$17,000 D.$300,000
Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method?
A. Accounts Receivable 100
Bad Debts Expense 100
B.Bad Debts Expense 100
Accounts Receivable 100
C.Allowance for Doubtful Accounts 100
Bad Debts Expense 100
D.Allowance for Doubtful Accounts 100
Accounts Receivable 100
Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?
A.$12,000 B.$7,000 C.$17,000 D.$300,000
Steps to Solve It:
1. Calculate balance you estimate your bad debt to be: (160,000*0.075) = $12,000
2. Draw Your T Account
3. Remember "Allow For Doubtful Accts" is a contra asset
so it has a normal balance on the Credit side. Given in the problem a credit balance of
$5,000 what do you need to add to it to get $12,000? Answer: $7,000
1. Calculate balance you estimate your bad debt to be: (160,000*0.075) = $12,000
2. Draw Your T Account
3. Remember "Allow For Doubtful Accts" is a contra asset
so it has a normal balance on the Credit side. Given in the problem a credit balance of
$5,000 what do you need to add to it to get $12,000? Answer: $7,000
If a company uses the allowance method for uncollectible accounts, then the entry to record $800 of estimated uncollectibles is
A. Bad Debts Expense 100
Accounts Receivable 100
B. Allowance for Doubtful Accounts 800
Accounts Receivable 800
C. Accounts Receivable 800
Allowance for Doubtful Accounts 800
D. Bad Debts Expense 800
Allowance for Doubtful Accounts 800
During 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful counts at December 31, 2014?
o$20,000
o$28,000
o$32,000
o$30,000
A. Bad Debts Expense 100
Accounts Receivable 100
B. Allowance for Doubtful Accounts 800
Accounts Receivable 800
C. Accounts Receivable 800
Allowance for Doubtful Accounts 800
D. Bad Debts Expense 800
Allowance for Doubtful Accounts 800
During 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful counts at December 31, 2014?
o$20,000
o$28,000
o$32,000
o$30,000
Steps To Solve:
Calculate Amt to write off:
200,000* 0.01=$ 20,000
Draw T Accoutn
Calculate Amt to write off:
200,000* 0.01=$ 20,000
Draw T Accoutn
Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?
oBad Debts Expense account is debited
oAccounts Receivable account is debited
oAllowance for Doubtful Accounts is debited (remember its contra asset so Dr is reduction)
oLoss on Accounts Receivable account is debited
oBad Debts Expense account is debited
oAccounts Receivable account is debited
oAllowance for Doubtful Accounts is debited (remember its contra asset so Dr is reduction)
oLoss on Accounts Receivable account is debited
Ryan Leaf Company uses the percentage–of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end and the total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a credit balance of $200 before adjustment?
A.Bad Debts Expense 1600
Allowance for Doubtful Accounts 1600
B.Bad Debts Expense 1800
Allowance for Doubtful Accounts 1800
C.Bad Debts Expense 1600
Accounts Receivable 1600
D.Allowance for Doubtful Accounts 1800
Bad Debt Expense 1800
A.Bad Debts Expense 1600
Allowance for Doubtful Accounts 1600
B.Bad Debts Expense 1800
Allowance for Doubtful Accounts 1800
C.Bad Debts Expense 1600
Accounts Receivable 1600
D.Allowance for Doubtful Accounts 1800
Bad Debt Expense 1800
Steps To Solve:
1. Calculate write off
60,000*0.03 = $1800
2. Draw T
3. Solve Notice a credit balance was given
1. Calculate write off
60,000*0.03 = $1800
2. Draw T
3. Solve Notice a credit balance was given
Which one of the following statements is true?
A.Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period.
B.Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period.
C.Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.
D.Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period.
When an uncollectible account is recovered after it has been written off, which of the following accounts will be credited in the process?
A. Allowance for Doubtful Accounts and Cash
B. Cash and Account Receivable
C. Accounts Receivable and Allowance for Doubtful Accounts
D. Allowance for Doubtful Accounts and Bad Debts Expense
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data:
Accounts receivable $800,000
Allowance for doubtful accounts balance before adjustment (credit) $12,000
Amounts expected to become uncollectible $65,000
How much is the cash (net) realizable value of the accounts receivable at December 31, after adjustment?
A.$747,000 B.$788,000 C.$723,000 D.$735,000
Answer:
•You are expecting (hoping) to receive $800,000 but deadbeat clients are not going to pay you. You expect NOT to collect $65,000. Remember
Accts Rcvble – Allow for Doubtful Accts = NET REALIZABLE VALUE
800,000 – 65,000 = 735,000
Remember, the Allow for Doubtful Accts is still open at end of year. You can take $ out of it if you expect it to be uncollected like they did here ($65,000) but it does not close with the end of the year.
What is often the most critical part of managing receivables?
Establishing A payment period
Determining which method to use to account for bad debt
Monitoring the receivables
Determining who gets credit and who doesn't
If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?
Require customers to pay cash in advance
Require the customer to provide a letter of credit or a bank guarantee
Contact references provided by the customer, such as banks and other suppliers
Provide the customer a lengthy payment period to increase the chance of paying
The Presidnet of Hampton Furniture authorizes a write off of $500 balance owed by Tom Schultz.
The entry to record the write off is:
Allowance for doubtful accoutns 500
Accounts receivalbe 500
On July 1 Tom Shultz pays the $500 that Hampton Furniture had written off. Hampton Furniture makes the following entries:
Accounts Receivable 500
Allowance for Doubtful Accts 500
Cash 500
Accounts Receivable 500
A.Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period.
B.Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period.
C.Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.
D.Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period.
When an uncollectible account is recovered after it has been written off, which of the following accounts will be credited in the process?
A. Allowance for Doubtful Accounts and Cash
B. Cash and Account Receivable
C. Accounts Receivable and Allowance for Doubtful Accounts
D. Allowance for Doubtful Accounts and Bad Debts Expense
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data:
Accounts receivable $800,000
Allowance for doubtful accounts balance before adjustment (credit) $12,000
Amounts expected to become uncollectible $65,000
How much is the cash (net) realizable value of the accounts receivable at December 31, after adjustment?
A.$747,000 B.$788,000 C.$723,000 D.$735,000
Answer:
•You are expecting (hoping) to receive $800,000 but deadbeat clients are not going to pay you. You expect NOT to collect $65,000. Remember
Accts Rcvble – Allow for Doubtful Accts = NET REALIZABLE VALUE
800,000 – 65,000 = 735,000
Remember, the Allow for Doubtful Accts is still open at end of year. You can take $ out of it if you expect it to be uncollected like they did here ($65,000) but it does not close with the end of the year.
What is often the most critical part of managing receivables?
Establishing A payment period
Determining which method to use to account for bad debt
Monitoring the receivables
Determining who gets credit and who doesn't
If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?
Require customers to pay cash in advance
Require the customer to provide a letter of credit or a bank guarantee
Contact references provided by the customer, such as banks and other suppliers
Provide the customer a lengthy payment period to increase the chance of paying
The Presidnet of Hampton Furniture authorizes a write off of $500 balance owed by Tom Schultz.
The entry to record the write off is:
Allowance for doubtful accoutns 500
Accounts receivalbe 500
On July 1 Tom Shultz pays the $500 that Hampton Furniture had written off. Hampton Furniture makes the following entries:
Accounts Receivable 500
Allowance for Doubtful Accts 500
Cash 500
Accounts Receivable 500