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64) Trendy Calendars is a new business. During its first year of operations, credit sales were $40,000, and
collections of credit sales were $36,000. One account, $650, was written off. Using the aging-of-receivables
method, management calculates $200 as its estimate of uncollectible amounts at year end. Prepare the
journal entry to record bad debts expense. Omit explanation.
65) The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad
debts expense. The company's management estimates that 2% of net credit sales will be uncollectible for
the year 2019. Net credit sales for the year were $250,000. Prepare the journal entry to record the bad
debts expense on December 31, 2019. Omit explanation.
66) During June 2019, Andy Company had the following transactions:
1. Sales of $185,000 ($142,000 on account, $43,000 for cash).
2. Collections on account, $128,000
3. Write-offs of uncollectible receivables, $1,900
4. Recovery of receivable previously written off, $600.
Additional information:
Ignore Cost of Goods Sold
Andy uses the allowance method for uncollectibles.
Andy estimates that 4.50% of its accounts receivable will be uncollectible.
On June 1, 2019, the Accounts Receivable balance was $25,000 and the Allowance for
Bad Debts had a normal account balance of $1,125.
Requirements:
a. Prepare the journal entries for the June 2019 transactions. Because the transactions represent a
summary of events, use June 30 for all dates. Omit explanations.
b. Prepare the June 30, 2019 adjusting journal entry. Omit explanation.
c. What is the net realizable value of Accounts Receivable on June 30, 2019 (after the adjusting journal
entry has been posted)? Show computations and label your work.
c.
June 30, 2019
Accounts Receivable
$37,100
Less: Allowance for Bad Debts
1,670
Net Realizable Value
$35,430
Computations
Desired Allowance balance
$1,670
Cr. bal
Balance before adjustment
175
Dr. bal
Bad Debt Expense
$1,845
Accounts Receivable
Beginning balance
$25,000
Add: sales on account
142,000
Less: write-offs
(1,900)
Less: collections on account
(128,000)
Ending balance
$37,100
AR ending balance
$37,100
× 4.50%
Desired balance of Allowance
for Bad Debts
$1,670
Allowance for Bad Debts
Beginning balance
$1,125
Cr. bal
Less: write-offs
(1,900)
Add: recovery
600
Ending balance before
adjustment
$175
Dr. bal
Diff: 3
LO: 8-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Estimating and Recording Bad Debt Expense - Allowance Method
67) When using the direct method to account for uncollectibles, an allowance account is used.
68) When using the allowance method to account for uncollectibles, the balance sheet approaches require
two steps in determining bad debts expense.
69) Businesses must estimate the amount of bad debts expense at the end of the accounting period only
when using the balance sheet approaches.
70) GAAP requires companies to ________ method to record bad debts expense.
A) use the direct write-off
B) use the allowance
C) select either the direct write-off or allowance
D) use the fair value
71) Under GAAP, which of the following is NOT an acceptable method of estimating the amount of bad
debt expense at the end of the accounting period?
A) percent-of-receivables
B) percent-of-sales
C) direct write-off
D) aging-of-receivables
72) Which method of estimating the amount of bad debts expense violates the matching principle?
A) percent-of-receivables
B) percent-of-sales
C) aging-of-receivables
D) All of these methods comply with the matching principle.
73) When comparing the direct write-off and allowance methods, the major difference is ________.
A) when to record bad debts expense
B) when to recognize revenue
C) determining the balance of the Allowance for Bad Debts account
D) developing adequate procedures for granting credit
74) Which of the following methods does NOT require an adjusting entry to recognize bad debts?
A) percent-of receivables
B) aging-of-receivables
C) percent-of-sales
D) direct write-off
75) Which of the following methods requires two entries to record the recovery of accounts receivable
previously written off?
A) direct write-off
B) allowance
C) Two entries are never required.
D) Both direct write-off and allowance.
1) The interest period extends from the original date of the note to the maturity date.
2) The maturity value of a note is the sum of the principal minus interest due at maturity.
3) Interest is generally stated as a monthly rate on notes receivable.
4) The entity that signs the promissory note and promises to pay the required amount is the ________.
A) maker of the note
B) banker of the note
C) holder of the note
D) payee of the note
5) On October 1, 2019, ABC Company loaned A. Jenkins $9,000 at an annual interest rate of 5% with a
maturity date of April 1, 2020. On October 1, 2019, ABC Company will record ________.
A) no entry since the note is due on April 1, 2020
B) a debit to Notes Receivable - A. Jenkins of $9,450
C) a credit to Notes Payable - A. Jenkins of $9,000
D) a debit to Notes Receivable - A. Jenkins of $9,000
6) For a promissory note, the entity to whom the promise of future payment is made is the ________.
A) maker of the note
B) endorser of the note
C) banker of the note
D) payee of the note
7) A company issues a 120-day, 14% note for $16,000. What is the principal amount of the note? (Round
your answer to the nearest dollar.)
A) $18,240
B) $16,000
C) $15,253
D) $16,747
8) On November 30, 2019, Jenkins Company loaned M. Lee $4,000 for one year at an annual interest rate
of 4%. Prepare the entry that Jenkins Company will make on November 30, 2019. Omit explanations.
Notes Receivable -M. Lee
4,000
Cash
4,000
Diff: 2
LO: 8-4
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: How Are Notes Receivable Accounted For? (H1)
9) In counting the number of days in a note term, omit the date the note was issued.
10) A five-month note dated October 15, 2019 would mature on February 15, 2020.
11) On July 7, A-1 Credit Union loaned $440,000 to Bridal Retail Shop on a 90 day, 8% note. What is the
maturity date of the note?
A) October 7
B) October 5
C) October 6
D) October 8
12) On August 14, Second Street Bank lent $210,000 to City Restaurant on a 75 day, 4% note. What is the
maturity date of the note?
A) Oct. 27
B) Oct. 28
C) Oct. 29
D) Oct. 30
13) The maturity date for a six-month note issued on January 15 would be ________.
A) July 15
B) July 14
C) July 16
D) July 10
14) In counting the number of days in a note term, ________.
A) do not count the maturity date
B) do not count the interest periods
C) count the date the note was issued
D) None of the statements are correct.
15) Interest on a $12,000 note at 6% for 4 months is $240.
16) Interest on a $70,000 note at 6% for 45 days is $518. (Use a 360 day year. Round your answer to the
nearest dollar.)
17) In the formula for computing the interest on a note, the time period represents the portion of a year
that interest has accrued on the note.
