40) At January 1, Davidson Services has the following balances:
During the year, Davidson has $104,000 of credit sales, collections of $100,000, and write-offs of $1,400.
Davidson records Uncollectible account expense at the end of the year using the percent–of-sales method, and
applies a rate of 1.1%, based on past history.
After the year-end entry to adjust the Uncollectible accounts expense, what is the ending balance in the Allowance
for uncollectible accounts?
A) Debit of $1,400
B) Credit of $1,944
C) Debit of $1,144
D) Credit of $544
41) At January 1, Davidson Services has the following balances:
During the year, Davidson has $104,000 of credit sales, collections of $100,000, and write-offs of $1,400.
Davidson records Uncollectible Account Expense at the end of the year using the percent-of-sales method, and
applies a rate of 1.1%, based on past history.
After the year-end entry to adjust the Uncollectible accounts expense, what is the ending balance in the
Uncollectible accounts expense?
A) Debit of $1,400
B) Credit of $1,944
C) Debit of $1,144
D) Credit of $544
42) At January 1, Everbright Sales has the following balances:
During the year, Everbright has $150,000 of credit sales, collections of $140,000, and write-offs of $3,000.
Everbright records Uncollectible accounts expense at the end of the year using the aging method. At the end of the
year, the aging analysis produces a figure of $1,900, being the estimate of uncollectible accounts at end of year.
Before the year-end entry to adjust the Uncollectible accounts expense is made, what is the balance in the
Uncollectible accounts expense?
A) Debit of $1,400
B) Credit of $1,944
C) Zero balance
D) Credit of $544
43) At January 1, Everbright Sales has the following balances:
During the year, Everbright has $150,000 of credit sales, collections of $140,000, and write-offs of $3,000.
Everbright records Uncollectible account expense at the end of the year using the aging method. At the end of the
year, the aging analysis produces a figure of $1,900, being the estimate of uncollectible accounts at end of year.
Before the year-end entry to adjust the Uncollectible accounts expense is made, what is the balance in the Allowance
for uncollectible accounts?
A) Debit of $1,800
B) Credit of $4,200
C) Zero balance
D) Debit of $3,000
44) At January 1, Everbright Sales has the following balances:
During the year, Everbright has $150,000 of credit sales, collections of $140,000, and write-offs of $3,000.
Everbright records Uncollectible account expense at the end of the year using the aging method. At the end of the
year, the aging analysis produces a figure of $1,900, being the estimate of uncollectible accounts at end of year.
After the year-end entry to adjust the Uncollectible accounts expense is made, what is the final balance in the
Allowance for uncollectible accounts?
A) Debit of $1,800
B) Credit of $4,200
C) Credit of $1,900
D) Debit of $3,000
45) At January 1, Everbright Sales has the following balances:
During the year, Everbright has $150,000 of credit sales, collections of $140,000, and write-offs of $3,000.
Everbright records Uncollectible account expense at the end of the year using the aging method. At the end of the
year, the aging analysis produces a figure of $1,900, being the estimate of uncollectible accounts at end of year.
After the year-end entry to adjust the Uncollectible accounts expense is made, what is the final balance in the
Uncollectible accounts expense?
A) Debit of $3,700
B) Credit of $4,200
C) Debit of $1,900
D) Debit of $3,000
46) On January 1, Wolfie’s Supply sold $222 worth of goods to customer Abe Smith on account. Please record the
journal entry for the sales revenue.
Accounts receivable—Smith
47) On January 1, Wolfie’s Supply sold $222 worth of goods to customer Abe Smith on account. On January 12,
Wolfie’s collected the amount from the customer. Please record the journal entry for the cash collection.
Cash
48) On January 1, Wolfie’s Supply sold $222 worth of goods to customer Abe Smith on account. For several
months Wolfie’s tried unsuccessfully to collect from the customer, and finally decided to write off the account.
Please record the journal entry for the write-off. (Wolfie’s uses the allowance method.)
Allowance for uncollective accounts
49) On January 1, Wolfie’s Supply sold $222 worth of goods to customer Abe Smith on account. For several
months, Wolfie’s tried unsuccessfully to collect from the customer, and finally decided to write off the account.
(Wolfie’s uses the allowance method.)
Later in the year, however, the customer came in to Wolfie’s, apologized for the late payment and handed over a
check for $222. To properly record the recovery of an account previously written off, two journal entries are
needed—one to restore the receivable previously written off, and one to record the cash receipt. Please show the
first of these two entries.
Accounts receivable—Smith
50) On January 1, Wolfie’s Supply sold $222 worth of goods to customer Abe Smith on account. For several
months, Wolfie’s tried unsuccessfully to collect from the customer, and finally decided to write off the account.
(Wolfie’s uses the allowance method.)
Later in the year, however, the customer came in to Wolfie’s, apologized for the late payment and handed over a
check for $222. To properly record the recovery of an account previously written off, two journal entries are
needed—one to restore the receivable previously written off, and one to record the cash receipt. Please show the
second of these two entries.
Cash
51) A newly created design business called Smart Art is just finishing up its first year of operations. During the
year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart
Art uses the percent-of-sales method to account for uncollectible account expense, and has decided to use a factor of
2% for their year-end adjustment of uncollectible account expense. Show the journal entry required to record
Uncollectible account expense at the end of the year.
Uncollectible accounts expense
52) A newly created design business called Smart Art is just finishing up its first year of operations. During the
year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart
Art uses the aging method to account for uncollectible account expense, and has calculated an amount of $200 as
their estimate of uncollectible amounts at year-end. Show the journal entry required to record Uncollectible account
expense at the end of the year.
Uncollectible accounts expense
53) Perry Materials Supply uses the aging method to account for uncollectible accounts. At the end of the year, the
balance in Accounts receivable was $146,000 and Perry prepared the following aging schedule.
Based on past history, Perry uses 2% for current receivables (1-30 days), 10% for 31-60 days, 20% for 61-90 days,
and 40% for over 90 days. Please complete the schedule and calculate the estimated amount of Uncollectible
accounts.
Learning Objective 8-3
1) The direct write-off method conforms to the matching principle better than the allowance method.
2) A company uses the direct write-off method to account for uncollectible receivables. Uncollectible account
expense will be estimated as a percentage of sales.
3) The direct write-off method is used primarily by large, publicly owned companies.
4) Companies that use GAAP accounting will prefer the use of the direct write-off method.
5) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and both
experience uncollectible accounts from time to time. Archer uses the percent–of-sales method to account for
uncollectible accounts, and Zorro uses the direct write-off method. Archer Company’s method complies with GAAP
and produces a better matching of revenues and expenses than does Zorro Company‘s method.
6) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and both
experience uncollectible accounts from time to time. Archer uses the aging method to account for uncollectible
accounts, and Zorro uses the direct write-off method. Zorro Company’s method complies with GAAP and produces
a better matching of revenues and expenses than does Archer Company’s method.
7) The direct write-off method requires an entry with a credit to Accounts receivable to record the uncollectible
accounts expense.
8) The direct write-off method would be considered acceptable if uncollectible receivables are very low.
9) The following information is from the 2013 records of Armadillo Camera Shop:
Accounts receivable, December 31, 2013
Allowance for uncollectible accounts, December 31, 2013
prior to adjustment
Net credit sales for 2013
Accounts written off as uncollectible during 2013
Cash sales during 2013
Uncollectible accounts expense is estimated by the aging–of-accounts-receivable method. Management estimates
that $2,850 of accounts receivable will be uncollectible. Which of the following will be the amount of Net accounts
receivable after adjustment?
A) $17,750
B) $17,150
C) $16,550
D) $13,000
10) Which of the following entries would be used to account for uncollectible receivables using the direct write-off
method?
A) Uncollectible accounts expense is debited and Accounts receivable is credited.
B) Allowance for uncollectible accounts is debited and Uncollectible accounts expense is credited.
C) Accounts receivable is debited and Uncollectible accounts expense is credited.
D) Uncollectible accounts expense is debited and Allowance for uncollectible accounts is credited.
11) Under the direct write-off method, a customer who doesn’t pay their bills is written off with what journal entry?
A) Debit Accounts receivable and credit Uncollectible account expense
B) Debit Uncollectible account expense and credit Cash
C) Debit Uncollectible account expense and credit Accounts receivable
D) Debit Lost revenue and credit Accounts receivable
12) The following information is from the 2013 records of Armadillo Camera Shop:
Accounts receivable, December 31, 2013
Net credit sales for 2013
Accounts written off as uncollectible during 2013
Cash sales during 2013
Uncollectible accounts expense is determined by the direct write-off method. Which of the following will be the
amount of Uncollectible accounts expense?
A) $2,250
B) $3,450
C) $7,000
D) $2,850
13) A company has significant uncollectible receivables. Why is the direct write-off method unacceptable?
A) Assets will be understated on the balance sheet.
B) It violates the matching principle.
C) Direct write-offs would be immaterial.
D) It is not allowed for tax reasons.
14) A company uses the direct write-off method to account for uncollectible receivables. Which of the following is
included in the entry to write off an uncollectible account?
A) A debit to Uncollectible account expense
B) A debit to the customer’s Account receivable
C) A credit to the Allowance for uncollectible accounts
D) No entry is made to write off uncollectible accounts.
15) A company uses the direct write-off method to account for uncollectible receivables. Which of the following is
included in the entry to write off an uncollectible account?
A) A credit to the Allowance for uncollectible accounts
B) A credit to the customer’s Account receivable
C) A debit to Allowance for uncollectible-accounts
D) No entry is made to write off uncollectible accounts.
16) When a company is using the direct write-off method, and an account is written off, the journal entry consists of
a:
A) debit to Accounts receivable and a credit to Cash.
B) credit to Accounts receivable and a debit to Uncollectible accounts expense.
C) debit to the Allowance for uncollectible accounts and a credit to Accounts receivable.
D) credit Accounts receivable and a debit to Interest expense.
17) Charlton Sales has a receivable for $92 that they now deem to be uncollectible. Charlton uses the direct write–
off method. Which of the following entries correctly records the write-off?
A)
Uncollectible accounts expense
92
Accounts receivable
92
B)
Cash
92
Accounts receivable
92
C)
Allowance for uncollectible accounts
92
Accounts receivable
92
D)
Accounts receivable
92
Uncollectible accounts expense
92
18) At January 1, Davidson Services has the following balances:
Davidson has the following transactions during January:
Credit sales of $80,000, collections of $76,000, and write-offs of $12,000.
Davidson uses the direct write-off method. At the end of January, the balance in Accounts receivable is:
A) $16,000.
B) $4,000.
C) $68,000.
D) $28,000.
19) At January 1, Davidson Services has the following balances:
Davidson has the following transactions during January:
Credit sales of $80,000, collections of $76,000, and write-offs of $12,000.
Davidson uses the direct write-off method. At the end of January, the balance in Uncollectible accounts expense is:
A) $16,000.
B) $4,000.
C) $12,000.
D) $28,000.
20) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and
both experience uncollectible accounts from time to time. Archer uses the percent–of-sales method to account for
uncollectible accounts, and Zorro uses the direct write-off method. Which of the following statements is FALSE?
A) Zorro Company‘s method complies with GAAP.
B) Archer Company’s method will provide better matching of revenues and expenses.
C) Archer Company’s net income is more accurate due to their accounting method.
D) Zorro Company‘s method does not provide good matching of revenues and expenses.
21) Zorro Company has significant amounts of accounts receivable, and experiences uncollectible accounts from
time to time. Zorro uses the direct write-off method. When Zorro Company writes off an uncollectible receivable,
what is the effect of that single transaction?
A) It will reduce net income.
B) It will have no effect on net income.
C) It will increase total assets of the company.
D) It will generate positive cash flow.
22) Archer Company has significant amounts of accounts receivable, and experiences uncollectible accounts from
time to time. Archer uses the aging method to account for uncollectible accounts. When Archer Company writes
off an uncollectible receivable, what is the effect of that single transaction?
A) It will reduce net income.
B) It will have no effect on net income.
C) It will increase total assets of the company.
D) It will generate negative cash flow.
23) Archer Company has significant amounts of accounts receivable, and experiences uncollectible accounts from
time to time. Archer uses the percent–of-sales method to account for uncollectible accounts. When Archer
Company writes off an uncollectible receivable, what is the effect of that single transaction?
A) It will reduce net income.
B) It will have no effect on net income.
C) It will increase total assets of the company.
D) It will generate negative cash flow.
24) Charlton Sales has a receivable for $92 that they now deem to be uncollectible. Charlton uses the direct write–
off method. Please provide the journal entry for the write-off.
Uncollectible accounts expense
Learning Objective 8-4
1) A credit card processing company generally uses one of two methods of payment—the net and the gross method.
2) When a business accepts credit cards from customers in payment of sales, the business has to pay a fee to the
credit card processor.
3) Which of the following is NOT one of the benefits of a business accepting credit cards from their customers?
A) The business doesn’t take the risk of the customer failing to pay.
B) The business can attract more customers and more sales.
C) The business earns a higher profit on credit card sales than cash sales.
D) The business does not have to check the credit ratings of customers.
4) Anchor Sales accepts credit cards from its customers. Assume Anchor makes a sale of $100 and the processor
charges a 3% fee. Assume that the credit card processing company uses the net method of depositing funds.
Provide the journal entry made by Anchor to record the sales revenue.
Cash
5) Anchor Sales accepts credit cards from its customers. Assume Anchor makes a sale of $100 and the processor
charges a 3% fee. Assume that the credit card processing company uses the gross method of depositing funds. This
method employs a sequence of two separate journal entries to record the revenue transaction and settlement with the
processor. Please provide the first journal entry made by Anchor to record the sales revenue.
Cash
6) Anchor Sales accepts credit cards from its customers. Assume Anchor makes a sale of $100 and the processor
charges a 3% fee. Assume that the credit card processing company uses the gross method of depositing funds. This
method employs a sequence of two separate journal entries to record the revenue transaction and settlement with the
processor. Please provide the second journal entry made by Anchor to record the completion of the settlement with
the processor.
Card discount expense
Learning Objective 8-5
1) Interest revenue must be reported for a note receivable that is outstanding at the end of the accounting period.
2) The maturity value of a note is the sum of the principal plus interest due at maturity.
3) A note is dishonored when the maker of the note fails to pay the note at maturity.
4) Interest rates are generally stated on a monthly basis.
5) Which of the following is the party borrowing funds on a note?
A) The maker of the note
B) The drawer of the note
C) The principal of the note
D) The payee of the note
6) Which of the following is the party lending funds on a note?
A) The maker of the note
B) The drawer of the note
C) The principal of the note
D) The payee of the note
7) Which of the following exists if the maker of a promissory note fails to pay the note on the due date?
A) A discounted note
B) A depreciated note
C) An amortized note
D) A dishonored note
8) On which of the following dates does a three-month note dated November 12 mature?
A) February 10
B) February 12
C) February 13
D) February 11
9) What is the maturity value of a 3-month, 12% note for $20,000?
A) $20,000
B) $22,400
C) $21,200
D) $20,600
10) A company issues a 60-day, 12% note for $11,000. What is the principal amount?
A) $11,000
B) $220
C) $11,220
D) $10,780
11) What is the total interest on a 3-month, 9% note for $32,000?
A) $720
B) $1,440
C) $2,880
D) $460
12) What is the maturity value of a note?
A) The principal amount minus interest due
B) The principal amount plus interest due
C) The face amount of the note
D) The principal amount times the interest rate