Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

The direct write-off method for uncollectible accounts is not allowed by either GAAP or IFRS,but is required by the Internal Revenue Service (IRS)for tax purposes.

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

A company's number of days to collect is higher than the length of credit period.Analysts might conclude:

Companies are concerned about the cost of extending credit for all the following reasons except the:

Under the direct write-off method,the entry to write off a customer's account would include a debit to:

A contra-asset account,such as Allowance for Doubtful Accounts or Accumulated Depreciation,has a normal balance of a ______ and causes total assets to:

A company that uses the allowance method to account for its bad debts had credit sales of $740,000 in 2015,including a $720 sale to Arbor Corporation.On December 31,2015,the company estimated its bad debts at 1.5% of its credit sales.On June 1,2016,the company wrote off as uncollectible the $720 account of Arbor Corporation; and on December 21,2016,Arbor Corporation unexpectedly paid her account in full. Required: Prepare the necessary journal entries dated: (a)on December 31,2015,to reflect the estimate of Bad Debt Expense; (b)on June 1,2016,to write off the bad debt; and (c)on December 21,2016,to record the unexpected collection.

The entry to adjust the Allowance for Doubtful Accounts causes total:

At December 31,2016,a company's records include the following: Required: Part a.The company estimates bad debts as 1.3% of credit sales.Prepare the required adjusting entry to record Bad Debt Expense for the year. Part b.Assume instead that the company uses the aging of receivables method.Its aging analysis reveals that the estimate of uncollectible receivables is $11,250.Prepare the required adjusting entry to record Bad Debt Expense for the year. Part c.Assume instead that the company estimates that its Bad Debt Expense for the year is $8,250.Use a T-account to determine the adjusted balance in the Allowance for Doubtful Accounts.

Notes receivable are typically only used when a company sells large dollar value items (such as cars).

Welles Company uses the direct write-off method of accounting for uncollectible accounts receivable.On December 6,2015,Welles sold $6,300 of merchandise to the Fleming Company.On August 8,2016,after numerous attempts to collect the account,Welles determined that the $6,300 account of the Fleming Company was uncollectible. Required: Part a.Prepare the general journal entries required to record the transactions on August 8,2016. Part b.Assuming that the $6,300 is material,explain how the direct write-off method violates the matching principle in this case.

Although there are some clear disadvantages associated with extending credit to customers,such as bad debt costs,most managers believe a particular advantage outweighs the costs.To which primary advantage do they refer?

Starseekers,Inc.began the year with a $4,800 normal balance in Accounts Receivable and a credit balance in its Allowance for Doubtful Accounts of $546.Starseekers' sales were all on account and amounted to $41,800 during the year.Collections from customers amounted to $40,600 and the company wrote-off customer account balances totaling $500 during the year. Required: Part a.Using T-accounts,determine how much Starseekers' customers owe the company at year-end and the unadjusted balance in its Allowance for Doubtful Accounts account. Part b.The company currently uses the percentage of credit sales method for determining its Bad Debt Expense.Historically,bad debts have approximated 3% of credit sales.Prepare the related adjusting entry and,using a T-account,determine the ending balance in the Allowance for Doubtful Accounts account. Part c.Assume instead that the company uses the aging of accounts receivable method.This method resulted in an estimate of uncollectible accounts of $1,105.Prepare the related adjusting entry and,using a T-account,determine the ending balance in the Allowance for Doubtful Accounts account.

Which of the following statements about the tradeoffs of extending credit is not correct?

Jensen Company uses the percentage of credit sales method for calculating Bad Debt Expense.The company reported $216,000 in total sales during the year; $178,000 of which were on credit.Jensen has experienced bad debt losses of 6% of credit sales in prior periods.What is the estimated amount of Bad Debt Expense for the year?

The amount of uncollectible accounts at the end of the year is estimated to be $25,000,using the aging of accounts receivable method.The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment.What is the adjusted balance of the Allowance for Doubtful Accounts at the end of the year?

The Allowance for Doubtful Accounts will have a debit balance before adjustments when:

When the direct write-off method is used:

An arrangement where receivables are sold to another company for immediate cash is called:

Samuel,Inc.has Accounts Receivable of $200,000 and an Allowance for Doubtful Accounts of $10,000.If it writes-off a customer account balance of $1,000,what is the amount of its net accounts receivable?