Exam 9: Receivables

The current credit balance in allowance for doubtful accounts is $1,150. Management estimates that 2% of net credit sales of $100,000 will be uncollectible. Based on the foregoing data, what is the bad-debt expense balance on the income statement?

Table 9-11 Mark's Sales At the beginning of 2019, Mark's sales had the following ledger balances: Date Accounts Receivable Debit Credit Balance 24,000 Dr. Date Allowance for Doubtful Accounts Debit Credit Balance 1,000 . Date Bad Debts Expense Debit Credit Balance During the year there were $450,000 of credit sales, $460,000 of collections, and $3,700 of write-offs. -Refer to Table 9-11. At the end of the year, Mark's adjusted for uncollectible account expense using the percent-of-sales method, and applied a rate, based on past history, of 1.2%. At the end of the year, what was the balance in the bad debts expense?

A company with net sales of $850,000, a beginning balance of net receivables of $230,000, and an ending balance of net receivables of $190,000 has a days' sales in accounts receivable of:

Table 9-10 Armadillo Camera Shop The following information is from the 2019 records of Armadillo Camera Shop: Accounts receivable, December 31,2019 \ 20,000 (debit) Allowance for doubtful accounts, December 31,2019, prior to adjustment 600( debit) Net credit sales for 2019 95,000 Accounts written off as uncollectible during 2019 7,000 Cash sales during 2019 27,000 -Refer to Table 9-10. Bad debts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of bad debts expense?

The entry to write off an uncollectible account using the direct write-off method includes a debit to allowance for doubtful accounts.

Clara's Consulting has a perpetual inventory system and uses the allowance method to account for its receivables. It has completed the following selected transactions: 2018 $\text {Nov. \quad1 Sold\quad \$ 8,900 of inventory to a client for \(\$ 12,400,2 / 10 , \mathrm { n } / 30\).}$ $\text {\quad\quad\quad 7\quad Borrowed \$ 300,000 cash from Independent Bank, receiving a 5 percent 175 day note.}$ $\text\quad\quad\quad {9\quad Received payment from the Nov. 1 sale.}$ $\text {\quad\quad\quad22 \quad Wrote off a client's account, \$ 2,700.}$ $\text {Dec.\quad 5 \quad Recorded VISA credit card sale of \$ 30,000. VISA charges a 4 percent fee. The cost of sales is \(\$ 22,800\).}$ $\text {\quad\quad\quad31 \quad Made an adjusting entry to accrue interest on the Independent Bank note.}$ $\quad\quad\quad\text {31\quad The accounts receivable balance at the end of December is \$ 432,000 and the company estimates that \(1 \%\) will be uncollectible. Prior to this adjustment, the debit balance in Allowance for Doubtful Accounts is \(\$ 1,250\).}$ $\text {2019}$ $\text {May \quad1 \quad Paid the maturity value of the Independent B ank note.}$ $\quad\quad\quad\text {15 \quad Sold \$ 3,000 of inventory to a customer for \(\$ 5,600\). The customer paid with her debit card. The bank charges \(\$ 1\) per debit card transaction.}$ $\text {Jun. \quad23 \quad Sold inventory to Arnold Company, receiving a 30-day, 6 percent note for \$ 18,000. The cost of the inventory was \(10,700\).}$ $\text {Jul.\quad 23 \quad Arnold Company failed to pay its note at maturity; converted the maturity value of the note to an account receiv able.}$ $\text {Nov. \quad16 \quad Paid salaries of \$ 10,800}$ $\text {Dec.\quad 5 \quad Collected in full from Arnold Company.}$ $\quad\quad\quad\text {31 \quad Sales recorded in 2017 amounted to \$ 459,000 and the company estimates that \(1 \%\) will be uncollectible.}$ Record the transactions in the general journal. Explanations are not required.

If the direct write-off method is used for uncollectible receivables, what account is debited when writing off a customer's account?

Table 9-5 The Ritchie Company gathered the following information pertaining to its year ended December 31, 2019, prior to any adjustments: Net credit sales for the year \ 780,000 Accounts receivable, Dec. 31,2019 170,000 Allowance for doubtful accounts, December 31,2019 3,200 . Aging of accounts receivable at December 31, 2019: 1-30 days \ 95,000 31-60 days 38,000 61-90 days 23,000 Over 90 days 14,000 Total \ 170,000 -Refer to Table 9-5. Assume Ritchie uses the percent-of-sales method for estimating uncollectible accounts. Ritchie estimates that bad-debt expense will be 0.6% of net credit sales. The balance in allowance for doubtful accounts after the adjusting entry for uncollectible accounts will be:

Mandy Smith's account was written off last year. She owed City Company $5,000. Using the allowance method, the journal entry to reinstate her account involves:

Table 9-1 Ringo Company had the following information relating to net credit sales for 2019: Accounts receivable, Jan. 1, 2019 \ 18,000 Dr. Allowance for doubtful accounts, Dec. 31, 2019, prior to adjustment 600 . Net credit sales during 2019 95,000 Collections on account during 2019 87,000 Cash sales during 2019 27,000 -Referring to Table 9-1, if uncollectible accounts are determined by the aging of receivables method to be $3,040, the bad-debt expense for 2019 would be:

The number of days it takes to collect the average amount of receivables is referred to as the:

Carolina Supply accepted an eight-month, $16,000 note receivable, with 8% interest, from Reading Corporation on August 1, 2019. Carolina Supply's year end is December 31. The amount of interest to be accrued on December 31, 2019 is:

Which of the following is a benefit of selling on credit?

The allowance for doubtful accounts is a contra account to accounts receivable and has a normal credit balance.

Sports Shop reports net accounts receivables on its December 31, 2019, balance sheet at $105,460. The allowance for doubtful accounts has a normal balance of $3,200 after adjustment. What is the ending balance in the accounts receivable account?

Prepare journal entries for the following independent situations. a)The allowance for doubtful accounts has a $525 debit balance prior to adjustment. An aging schedule prepared on December 31 reveals uncollectible accounts of $7,600. b)The allowance for doubtful accounts has a $500 credit balance prior to adjustment. An aging schedule prepared on December 31 reveals uncollectible accounts of $7,800. c)The allowance for doubtful accounts has a $700 credit balance prior to adjustment. Net credit sales during the year are $260,000 and 4% are estimated to be uncollectible. d)The allowance for doubtful accounts has a $800 credit balance prior to adjustment. Net credit sales during the year are $270,000 and 3.5% are estimated to be uncollectible receivable.

Richter Company, which has a December 31 year end, and uses a periodic inventory system, completed the following transactions during 2018 and 2019: 2018 Oct. 14 Sold merchandise to Bruce Company, receiving a 60-day, 9% note for $4,000. Nov. 16 Sold merchandise to Marine Company receiving a 72-day, 8% note for $6,500. Dec. 13 Received amount due from Bruce Company. Dec. 31 Accrued interest on the Marine Company note. 2019 Jan. 27 Collected in full from Marine Company. Prepare the necessary journal entries to record the above transactions.

Selling on credit creates both a benefit and a cost.

Lester Company uses the allowance method and estimates its bad-debt expense based on aging the receivables. Before the adjusting entry, the allowance for doubtful accounts had a $425 debit balance. Based on aged receivables, Lester estimates that $3,700 will probably prove uncollectible. What is the amount of the adjusting journal entry that Lester should make?

Compute the ending balance in the allowance for doubtful accounts after the adjusting entries have been prepared for the following independent situations. a)Credit balance in allowance for doubtful accounts is $500 before adjustment. An aging schedule indicates $3,500 of accounts receivables are uncollectible. b)Debit balance in allowance for doubtful accounts is $700 before adjustment. An aging schedule indicates $4,300 of accounts receivables are uncollectible. c)Credit balance in allowance for doubtful accounts is $500 before adjustment. Net credit sales for the current year are $325,000 and 1% is considered uncollectible. d)Debit balance in allowance for doubtful accounts is $700 before adjustment. Net credit sales for the current year are $350,000 and 1.25% is considered uncollectible.