Ch 8 - Accounting for Receivables

Question 1

What is the typical amount of time accounts receivables are expected to be paid?

Answer 1

30 days. So considered a current asset.

Question 2

When is an account receivable recognized?

Answer 2

When a service obligation is completed or product delivered.

Accounts receivable - Mega mart xxx
Sales xxx

Question 3

How would a company record a sale that was made on their in-store credit card (like home depot)

Answer 3

Credit card receivable

Sales

Question 4

If a customer does not pay AR within 30 days, what would the seller do? Say Kids online owes $2000 and Adorable garments charges 18% on balance.

Answer 4

Add interest charges to balance.
($30 = 2000 x 18% x 1/12)
Accounts receivable - Kids online 30
Interest revenue 30

Question 5

Where is interest revenue typically recorded (what statement)?

Answer 5

Other revenues - non-operating section of the income statement

Question 6

In the financial statements, for receivables, what can be reported as an asset? What is it called

Answer 6

Only collectible receivables. Net realizable value.

Question 7

What is bad debt expense

Answer 7

Uncollectible credit losses.

Bad debt expense xxx
Allowance for doubtful accounts xxx

Question 8

What is Allowance for Doubtful Accounts

Answer 8

A contra asset account to Accounts receivable. Used to ensure the assets are not overstated on the balance sheet. Credit balance.

Question 9

How do the different approaches for calculating bad debt expense relate to the existing balance in Allowance for Doubtful Accounts? When there is a debit or a credit balance?

Answer 9

when using the percentage of sales approach, the existing balance in Allowance for Doubtful Accounts is IGNORED.

When there is a CREDIT balance, you would subtract it from the calculated amount.

When there is a DEBIT balance, you would add it to the calculated amount.

Question 10

Allowance for Uncollectible Accounts has a $1000 credit balance prior to adjustment. Net credit sales during the year are $500,000 and 4% are estimated to be uncollectible.

Answer 10

($500,000 x 4% = 20,000 expected to be uncollectible).

Since Using PERCENTAGE OF SALES APPROACH, no further calc. needed.

Bad debt expense 20,000
Allowance for doubtful accounts 20,000

Question 11

The allowance for uncollectible accounts has a $500 debit balance prior to adjustment. Based on an aging schedule of accounts receivable prepared on Dec 31, $18,500 of accounts receivable are estimated to be uncollectible

Answer 11

18,500 + 500 = 19,000 (SINCE DEBIT BALANCE)

Bad debt expense 19,000
Allowance for doubtful accounts 19,000

Question 12

The allowance for uncollectible accounts has a $2000 credit balance prior to adjustment. Based on an aging schedule of accounts receivable prepared on Dec 31, $12,000 of accounts receivable are estimated to be uncollectible

Answer 12

12000 - 2000 = $10,000 (SINCE CREDIT BALANCE)

Bad debt expense 10,000
Allowance for doubtful accounts 10,000

Question 13

The allowance for uncollectible accounts has a $200 debit balance prior to adjustment. Net credit sales during the year are $200,000 and 4% are estimated to be uncollectible.

Answer 13

200,000 x 4% = $8000.
Since Using PERCENTAGE OF SALES APPROACH, no further calc. needed.

Bad debt expense 8000
Allowance for doubtful accounts 8000

Question 14

How would you record an account that has been deemed to be written off? Say Kids online had outstanding balance of $4500.

Answer 14

Allowance for Doubtful accounts 4,500

Accounts Receivable - Kids Online 4,500

Question 15

Say the previous Kids Online $4500 did decide to pay their account after it was written off. How would this be journalized?

Answer 15

Accounts receivables - Kids Online 4,500
Allowance for Doubtful Accounts 4,500

2nd entry:
Cash 4500
Accounts receivable - Kids Online 4500

Question 16

On May 1, Griffin Comp. accepts from S. Drummond a $3,400, three month, 5% note in settlement of Drummonds overdue account. Interest due at maturity. Griffith has a June 30 year end.
A) Prepare any journal entries, assuming Drummond honors the note Aug 1
B) Prepare JE on Aug 1 if She did not pay the note and collection is not expected in the future.

Answer 16

May 1 Notes receivable - S Drummond 3,400
Accounts receivable - S. Drummond 3,400

June 30 Interest receivable 28
Interest revenue 28
3400x5% x (2/12)
Aug 1 Cash 3442
Notes receivable 3400
Interest revenue 14
Interest receivable 28

B) Aug 1 Allowance for Doubtful Accounts 3428
Notes receivable - S. Drummond 3400
Interest receivable 28

Question 17

On June 1, Jade company sells merch on account to Ruby Enterprise for $22,000, terms 2/10, n/30. On June 3 Ruby returns merchandise worth $4000 to Jade. On June 11th, payment is received for balance due. What is the amount of cash received? JE?

Answer 17

Cash 17,640
Sales discounts 360
Accounts receivable - Ruby Enterprise 18,000

Question 18

Kartik Company accounts receivable are $200,000 at end of year. Allowance for Doubtful Accounts has a credit balance of $4000 before adjustments. Company estimates 5% of accounts receivable will not be collected. What is the net realizable value of the accounts receivable at the end of the year?
A) 196,000
B) 200,000
C) 186,000
D) 190,000

Answer 18

D) 190,000

200,000 x 5%. No further adjustment since using percentage of sales approach.

Question 19

Net sales for the month are $800,000 and bad debts are expected to be 1.5% of net sales. The company uses the percentage of sales approach. If allowance for Doubtful Accounts has a credit balance of $15,000 before adjustment, what is the balance in the allowance account after adjustment?
A) 15,000
B) 23,000
C) 27,000
D) 12,000

Answer 19

C 27,000.

Question is asking for new balance for AfDA - not adjustment needed to be made.

Question 20

On Jan 1, 2017, Allowance for Doubtful accounts had a credit balance of $40,000. In 2017, $30,000 of uncollectible accounts receivable were written off. On Dec 31, 2017 the company had accounts receivable of $900,000. Experience indicates that 4% of total receivables will be uncollectible. What would the adjusting JE be for Dec 31?

Answer 20

900,000 x 4% = $36,000.

Bad Debt Expense 26,000
Allowance for Doubtful accounts 26,000

Question 21

on June 1, Sorenson Co accepts a $2,000, four month, 6% promissory note in settlement of an account with Parton Co. Sorenson has a July 31 year end. JE to record interest on July 31?

Answer 21

$2000 x 6% x 2/12 = 20.

Interest receivable 20
Interest revenue 20

Question 22

Pawar Co. holds Abbot retailers $10,000 four-month, 9% note. If no interest had previously been accrued when the note is collected, the entry made by Pawar Co is:

Answer 22

Cash 10,300
Note receivable - Abbot Retailers 10,000
Interest revenue 300

Question 23

The allowance for doubtful accounts is presented in the financial statements as:
A) A current liability on the balance sheet
B) A deduction from accounts receivable in the balance sheet
C) a contra revenue account in the income statement
D) an operating expense in the income statment

Answer 23

B) A deduction from AR in the balance sheet