the negative effects of bad debts have already been recorded. This is illustrated by walking
students through writing off an actual bad debt and then subsequently collecting on an account
previously written off. Students are also introduced to the aging method, explaining that the
collectability of a receivable is inherently linked to its age (or number of days past due).
Part C deals with notes receivable. Students are reminded that accounting for notes
receivable is similar to accounts receivable, except for interest collection, which usually
accompanies notes receivable.
The analysis section discusses the receivables turnover ratio and the average collection
period to help students understand how decision makers use receivables information. The
analysis is performed for Tenet Healthcare and Lifepoint Hospitals, two companies with
relatively high uncollectible accounts because of the nature of the industry in which they operate.
The analysis demonstrates that the lower profit performance of Tenet may be linked to the
company’s higher uncollectible accounts.
For those interested in comparing the balance sheet method (percentage-of-receivables) to
the income statement method (percentage-of-credit-sales), the appendix provides an analysis.
Understanding this comparison may be helpful from a conceptual understanding that accounting
choices have real effects on amounts reported in the financial statements. However, students are
reminded that the percentage-of-credit-sales method is allowed only if the ending balance of the
allowance account is not materially different than that under the percentage-of-receivables
method. Accounts receivable must be recorded at their net realizable value, which is a balance
sheet focus.
Assignment Charts
Assignment Charts
Questions Learning
Objective(s) Topic
Time
(Min.)
1 LO5-1 Describe recording of a credit sale 5
2 LO5-1 Explain the difference between a trade receivable
and a nontrade receivable
5
3 LO5-2 Explain the difference a trade discount and sales
discount
5
4 LO5-2 Explain accounting treatment for sales returns and
allowances
5
5 LO5-2 Provide an example of revenue earned at one point
or over time
5
6 LO5-3 Explain how companies account for uncollectible
accounts receivable
5
7 LO5-3 Understand purposes of estimating future
uncollectible accounts
5
8 LO5-3 Relate accounting for uncollectible accounts to the
matching principle
5
9 LO5-3 Identify the financial statement effects of accounting
for uncollectible accounts
5
10 LO5-3 Describe the year-end adjustment for the allowance
for uncollectible accounts
5
11 LO5-3 Explain a debit balance in the allowance for
uncollectible accounts
5
12 LO5-3 Explain net realizable value 5
13 LO5-4 Explain the age of accounts receivable 5
14 LO5-5 Describe the entry to write off an account 5
15 LO5-5 Explain a credit balance in the allowance for
uncollectible accounts
5
16 LO5-6 Discuss differences between the allowance method
and direct write-off method
5
17 LO5-7 Describe notes receivable 5
18 LO5-7 Explain terms related to notes receivable 5
19 LO5-7 Understand interest calculation on a note receivable 5
20 LO5-7 Describe the entry to accrue interest revenue 5
21 LO5-8 Explain the receivables turnover ratio 5
22 LO5-8 Identify the average collection period 5
23 LO5-8 Discuss the benefits of effectively managing
receivables
5
24 LO5-9 Discuss the use of the percentage-of-credit-sales
method
5
25 LO5-9 Explain the balance sheet method and income
statement method of accounting for uncollectible
accounts
5
Brief
Exercises Learning
Objective(s) Topic
Time
(Min.)
BE5-1 LO5-2 Record accounts receivable and trade discount 5
BE5-2 LO5-2 Calculate net sales 5
BE5-3 LO5-3 Record the adjustment for uncollectible accounts
BE5-4 LO5-3 Record the adjustment for uncollectible accounts 5
BE5-5 LO5-3 Record the adjustment for uncollectible accounts 5
BE5-6 LO5-3 Record the adjustment for uncollectible accounts
BE5-7 LO5-3 Record the adjustment for uncollectible accounts 10
BE5-8 LO5-4 Calculate uncollectible accounts using the aging
method
5
BE5-9 LO5-4 Calculate uncollectible accounts using the aging
method
5
BE5-10 LO5-5 Record the write-off accounts of uncollectible
accounts
5
BE5-11 LO5-5 Record collection of account previously written off 5
BE5-12 LO5-6 Use the direct write off method to account for
uncollectible accounts
10
BE5-13 LO5-7 Calculate amounts related to interest 10
BE5-14 LO5-7 Calculate interest revenue on notes receivable 5
BE5-15 LO5-9 Use the percentage-of-credit-sales method to adjust
for uncollectible accounts
5
BE5-16 LO5-9 Use the percentage of credit sales method to adjust
for uncollectible accounts
5
Exercises Learning
Objective(s) Topic
Time
(Min.)
E5-1 LO5-1 Record credit sale 5
E5-2 LO5-2 Record cash sales with a trade discount 5
E5-3 LO5-1,5-2 Record credit sale and cash collection with a sales
discount
5
E5-4 LO5-1,5-2 Record credit sale and cash collection 5
E5-5 LO5-1,5-2 Record credit purchase and cash payment 5
E5-6 LO5-1,5-2 Record credit sales with a sales allowance 10
E5-7 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-8 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-9 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-10 LO5-4 Record the adjustment for uncollectible accounts
using the aging method
10
E5-11 LO5-4 Record the adjustment for uncollectible accounts
using the aging method
10
E5-12 LO5-3,5-5 Identify the financial statement effects of
transactions related to accounts receivable and
allowance for uncollectible accounts
10
E5-13 LO5-6 Compare the allowance method and the direct
write-off method
20
E5-14 LO5-7 Record notes receivable 5
E5-15 LO5-7 Record notes receivable and interest revenue 5
E5-16 LO5-7 Record notes payable and interest expense 5
E5-17 LO5-7 Record notes receivable and interest revenue 10
E5-18 LO5-8 Calculate receivables ratios 10
E5-19 LO5-9 Compare the percentage-of-receivables method and
the percentage-of-credit-sales method
10
E5-20 LO5-9 Compare the percentage-of-receivables method and
the percentage-of-credit-sales method
10
Problems Learning
Objective(s) Topic
Time
(Min.)
P5-1A LO5-1 Calculate the amount of revenue to recognize 10
P5-2A LO5-1,5-2 Record transactions related to credit sales and contra
revenues
20
P5-3A LO5-3, 5-5 Record transactions related to accounts receivable 25
P5-4A LO5-4, 5-5 Record transactions related to uncollectible accounts 15
P5-5A LO5-3, 5-6 Compare the direct write-off method to the
allowance method
20
P5-6A LO5-3 Using estimates of uncollectible accounts to
overstate income
20
P5-7A LO5-3, 5-5 Overestimating future uncollectible accounts 20
P5-8A LO5-7 Record long-term notes receivable and interest
revenue
10
P5-9A LO5-8 Calculate and analyze ratios 15
P5-1B LO5-1 Calculate the amount of revenue to recognize 10
P5-2B LO5-1, 5-2 Record transactions related to credit sales and contra
revenues
20
P5-3B LO5-3, 5-5 Record transactions related to accounts receivable 25
P5-4B LO5-4, 5-5 Record transactions related to uncollectible accounts 15
P5-5B LO5-3, 5-6 Compare the direct write-off method to the
allowance method
20
P5-6B LO5-3 Using estimates of uncollectible accounts to
understate income
20
P5-7B LO5-3, 5-5 Underestimating future uncollectible accounts 20
P5-8B LO5-7 Record long-term notes receivable and interest
revenue
10
P5-9B LO5-8 Calculate and analyze ratios 15
Additional
Perspectives Topic
Time
(Min.)
AP5-1 Continuing Problem: Great Adventures 30
AP5-2 Financial Analysis: American Eagle Outfitters, Inc. 15
AP5-3 Financial Analysis: The Buckle, Inc. 15
AP5-4 Comparative Analysis: American Eagle Outfitters, Inc., vs. The
Buckle, Inc.
10
AP5-5 Ethics 20
AP5-6 Internet Research 30
AP5-7 Written Communication 25
AP5-8 Earnings Management 20
Chapter Quiz Questions
The following multiple-choice questions are 10 unique quiz questions that correspond to the 10
questions at the end of each chapter. Each question covers the same learning objective but with a
little different twist. The correct answer is highlighted in bold for each item.
LO5-1
1. Which of the following transactions would result in an account receivable?
a. Providing services to customers on account.
b. Paying for supplies previously purchased on account.
c. Receiving a loan from the bank.
d. Purchasing supplies on account.
LO5-2
2. On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30.
Frederickson pays for the services on August 12. What amount would Sanders record as revenue
on August 4?
a. $4,850.
b. $5,000.
c. $5,150.
d. $5,300.
LO5-2
3. Refer to the information in the previous question. What is the amount of net revenues (total
revenue minus sales discounts) as of August 12?
a. $4,850.
b. $5,000.
c. $5,150.
d. $5,300.
LO5-3
4. Suppose the balance of the allowance for uncollectible accounts at the end of the current year
is $800 (debit) before any adjustment. The company estimates future uncollectible accounts to be
$5,600. At what amount would bad debt expense be reported in the current year’s income
statement?
a. $800.
b. $4,800.
c. $5,600.
d. $6,400.
LO5-3
5. Suppose the balance of the allowance for uncollectible accounts at the end of the current year
is $800 (credit) before any adjustment entry. The company estimates future uncollectible
accounts to be $5,600. At what amount would bad debt expense be reported in the current year’s
income statement?
a. $800.
b. $4,800.
c. $5,600.
d. $6,400.
LO5-4
6. Nija Incorporated reports the following aging schedule of its accounts receivable with the
estimated percent uncollectible. What is the total estimate of uncollectible accounts using the
aging method?
Age Group
Amount
Receivable
Estimated
Percent
Uncollectible
0-60 days $40,000 1%
61-90 days 15,000 20%
More than 90 days past due 5,000 60%
Total $60,000
a. $400.
b. $3,000.
c. $3,400.
d. $6,400.
LO5-5
7. The effect of writing off a specific account receivable is:
a. A reduction in the allowance for uncollectible accounts.
b. An increase in the amount of accounts receivable.
c. An increase in the amount of bad debt expense.
d. An increase in the allowance for uncollectible accounts.
LO5-6
8. Under the direct write-off method, bad debt expense is reported:
a. When an account receivable is estimated to be uncollectible.
b. When an account receivable is initially recorded.
c. When an account receivable is proven uncollectible.
d. When the allowance for uncollectible accounts is established.
LO5-7
9. At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By
the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts
receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?
a. 1.5.
b. 5.0.
c. 6.0.
d. 7.5.
LO5-8
10. On September 1, Bates Supplies borrows $30,000 from Vines Incorporated by signing an 8%
note due in twelve months. Calculate the amount of interest revenue Vines will record on
December 31, four months after the note is issued.
a. $0.
b. $800.
c. $1,600.
d. $2,400.
Alternate Let’s Review
the negative effects of bad debts have already been recorded. This is illustrated by walking
students through writing off an actual bad debt and then subsequently collecting on an account
previously written off. Students are also introduced to the aging method, explaining that the
collectability of a receivable is inherently linked to its age (or number of days past due).
Part C deals with notes receivable. Students are reminded that accounting for notes
receivable is similar to accounts receivable, except for interest collection, which usually
accompanies notes receivable.
The analysis section discusses the receivables turnover ratio and the average collection
period to help students understand how decision makers use receivables information. The
analysis is performed for Tenet Healthcare and Lifepoint Hospitals, two companies with
relatively high uncollectible accounts because of the nature of the industry in which they operate.
The analysis demonstrates that the lower profit performance of Tenet may be linked to the
company’s higher uncollectible accounts.
For those interested in comparing the balance sheet method (percentage-of-receivables) to
the income statement method (percentage-of-credit-sales), the appendix provides an analysis.
Understanding this comparison may be helpful from a conceptual understanding that accounting
choices have real effects on amounts reported in the financial statements. However, students are
reminded that the percentage-of-credit-sales method is allowed only if the ending balance of the
allowance account is not materially different than that under the percentage-of-receivables
method. Accounts receivable must be recorded at their net realizable value, which is a balance
sheet focus.
Assignment Charts
Assignment Charts
Questions Learning
Objective(s) Topic
Time
(Min.)
1 LO5-1 Describe recording of a credit sale 5
2 LO5-1 Explain the difference between a trade receivable
and a nontrade receivable
5
3 LO5-2 Explain the difference a trade discount and sales
discount
5
4 LO5-2 Explain accounting treatment for sales returns and
allowances
5
5 LO5-2 Provide an example of revenue earned at one point
or over time
5
6 LO5-3 Explain how companies account for uncollectible
accounts receivable
5
7 LO5-3 Understand purposes of estimating future
uncollectible accounts
5
8 LO5-3 Relate accounting for uncollectible accounts to the
matching principle
5
9 LO5-3 Identify the financial statement effects of accounting
for uncollectible accounts
5
10 LO5-3 Describe the year-end adjustment for the allowance
for uncollectible accounts
5
11 LO5-3 Explain a debit balance in the allowance for
uncollectible accounts
5
12 LO5-3 Explain net realizable value 5
13 LO5-4 Explain the age of accounts receivable 5
14 LO5-5 Describe the entry to write off an account 5
15 LO5-5 Explain a credit balance in the allowance for
uncollectible accounts
5
16 LO5-6 Discuss differences between the allowance method
and direct write-off method
5
17 LO5-7 Describe notes receivable 5
18 LO5-7 Explain terms related to notes receivable 5
19 LO5-7 Understand interest calculation on a note receivable 5
20 LO5-7 Describe the entry to accrue interest revenue 5
21 LO5-8 Explain the receivables turnover ratio 5
22 LO5-8 Identify the average collection period 5
23 LO5-8 Discuss the benefits of effectively managing
receivables
5
24 LO5-9 Discuss the use of the percentage-of-credit-sales
method
5
25 LO5-9 Explain the balance sheet method and income
statement method of accounting for uncollectible
accounts
5
Brief
Exercises Learning
Objective(s) Topic
Time
(Min.)
BE5-1 LO5-2 Record accounts receivable and trade discount 5
BE5-2 LO5-2 Calculate net sales 5
BE5-3 LO5-3 Record the adjustment for uncollectible accounts
BE5-4 LO5-3 Record the adjustment for uncollectible accounts 5
BE5-5 LO5-3 Record the adjustment for uncollectible accounts 5
BE5-6 LO5-3 Record the adjustment for uncollectible accounts
BE5-7 LO5-3 Record the adjustment for uncollectible accounts 10
BE5-8 LO5-4 Calculate uncollectible accounts using the aging
method
5
BE5-9 LO5-4 Calculate uncollectible accounts using the aging
method
5
BE5-10 LO5-5 Record the write-off accounts of uncollectible
accounts
5
BE5-11 LO5-5 Record collection of account previously written off 5
BE5-12 LO5-6 Use the direct write off method to account for
uncollectible accounts
10
BE5-13 LO5-7 Calculate amounts related to interest 10
BE5-14 LO5-7 Calculate interest revenue on notes receivable 5
BE5-15 LO5-9 Use the percentage-of-credit-sales method to adjust
for uncollectible accounts
5
BE5-16 LO5-9 Use the percentage of credit sales method to adjust
for uncollectible accounts
5
Exercises Learning
Objective(s) Topic
Time
(Min.)
E5-1 LO5-1 Record credit sale 5
E5-2 LO5-2 Record cash sales with a trade discount 5
E5-3 LO5-1,5-2 Record credit sale and cash collection with a sales
discount
5
E5-4 LO5-1,5-2 Record credit sale and cash collection 5
E5-5 LO5-1,5-2 Record credit purchase and cash payment 5
E5-6 LO5-1,5-2 Record credit sales with a sales allowance 10
E5-7 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-8 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-9 LO5-3 Record the adjustment for uncollectible accounts
and calculate net realizable value
10
E5-10 LO5-4 Record the adjustment for uncollectible accounts
using the aging method
10
E5-11 LO5-4 Record the adjustment for uncollectible accounts
using the aging method
10
E5-12 LO5-3,5-5 Identify the financial statement effects of
transactions related to accounts receivable and
allowance for uncollectible accounts
10
E5-13 LO5-6 Compare the allowance method and the direct
write-off method
20
E5-14 LO5-7 Record notes receivable 5
E5-15 LO5-7 Record notes receivable and interest revenue 5
E5-16 LO5-7 Record notes payable and interest expense 5
E5-17 LO5-7 Record notes receivable and interest revenue 10
E5-18 LO5-8 Calculate receivables ratios 10
E5-19 LO5-9 Compare the percentage-of-receivables method and
the percentage-of-credit-sales method
10
E5-20 LO5-9 Compare the percentage-of-receivables method and
the percentage-of-credit-sales method
10
Problems Learning
Objective(s) Topic
Time
(Min.)
P5-1A LO5-1 Calculate the amount of revenue to recognize 10
P5-2A LO5-1,5-2 Record transactions related to credit sales and contra
revenues
20
P5-3A LO5-3, 5-5 Record transactions related to accounts receivable 25
P5-4A LO5-4, 5-5 Record transactions related to uncollectible accounts 15
P5-5A LO5-3, 5-6 Compare the direct write-off method to the
allowance method
20
P5-6A LO5-3 Using estimates of uncollectible accounts to
overstate income
20
P5-7A LO5-3, 5-5 Overestimating future uncollectible accounts 20
P5-8A LO5-7 Record long-term notes receivable and interest
revenue
10
P5-9A LO5-8 Calculate and analyze ratios 15
P5-1B LO5-1 Calculate the amount of revenue to recognize 10
P5-2B LO5-1, 5-2 Record transactions related to credit sales and contra
revenues
20
P5-3B LO5-3, 5-5 Record transactions related to accounts receivable 25
P5-4B LO5-4, 5-5 Record transactions related to uncollectible accounts 15
P5-5B LO5-3, 5-6 Compare the direct write-off method to the
allowance method
20
P5-6B LO5-3 Using estimates of uncollectible accounts to
understate income
20
P5-7B LO5-3, 5-5 Underestimating future uncollectible accounts 20
P5-8B LO5-7 Record long-term notes receivable and interest
revenue
10
P5-9B LO5-8 Calculate and analyze ratios 15
Additional
Perspectives Topic
Time
(Min.)
AP5-1 Continuing Problem: Great Adventures 30
AP5-2 Financial Analysis: American Eagle Outfitters, Inc. 15
AP5-3 Financial Analysis: The Buckle, Inc. 15
AP5-4 Comparative Analysis: American Eagle Outfitters, Inc., vs. The
Buckle, Inc.
10
AP5-5 Ethics 20
AP5-6 Internet Research 30
AP5-7 Written Communication 25
AP5-8 Earnings Management 20
Chapter Quiz Questions
The following multiple-choice questions are 10 unique quiz questions that correspond to the 10
questions at the end of each chapter. Each question covers the same learning objective but with a
little different twist. The correct answer is highlighted in bold for each item.
LO5-1
1. Which of the following transactions would result in an account receivable?
a. Providing services to customers on account.
b. Paying for supplies previously purchased on account.
c. Receiving a loan from the bank.
d. Purchasing supplies on account.
LO5-2
2. On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30.
Frederickson pays for the services on August 12. What amount would Sanders record as revenue
on August 4?
a. $4,850.
b. $5,000.
c. $5,150.
d. $5,300.
LO5-2
3. Refer to the information in the previous question. What is the amount of net revenues (total
revenue minus sales discounts) as of August 12?
a. $4,850.
b. $5,000.
c. $5,150.
d. $5,300.
LO5-3
4. Suppose the balance of the allowance for uncollectible accounts at the end of the current year
is $800 (debit) before any adjustment. The company estimates future uncollectible accounts to be
$5,600. At what amount would bad debt expense be reported in the current year’s income
statement?
a. $800.
b. $4,800.
c. $5,600.
d. $6,400.
LO5-3
5. Suppose the balance of the allowance for uncollectible accounts at the end of the current year
is $800 (credit) before any adjustment entry. The company estimates future uncollectible
accounts to be $5,600. At what amount would bad debt expense be reported in the current year’s
income statement?
a. $800.
b. $4,800.
c. $5,600.
d. $6,400.
LO5-4
6. Nija Incorporated reports the following aging schedule of its accounts receivable with the
estimated percent uncollectible. What is the total estimate of uncollectible accounts using the
aging method?
Age Group
Amount
Receivable
Estimated
Percent
Uncollectible
0-60 days $40,000 1%
61-90 days 15,000 20%
More than 90 days past due 5,000 60%
Total $60,000
a. $400.
b. $3,000.
c. $3,400.
d. $6,400.
LO5-5
7. The effect of writing off a specific account receivable is:
a. A reduction in the allowance for uncollectible accounts.
b. An increase in the amount of accounts receivable.
c. An increase in the amount of bad debt expense.
d. An increase in the allowance for uncollectible accounts.
LO5-6
8. Under the direct write-off method, bad debt expense is reported:
a. When an account receivable is estimated to be uncollectible.
b. When an account receivable is initially recorded.
c. When an account receivable is proven uncollectible.
d. When the allowance for uncollectible accounts is established.
LO5-7
9. At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By
the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts
receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?
a. 1.5.
b. 5.0.
c. 6.0.
d. 7.5.
LO5-8
10. On September 1, Bates Supplies borrows $30,000 from Vines Incorporated by signing an 8%
note due in twelve months. Calculate the amount of interest revenue Vines will record on
December 31, four months after the note is issued.
a. $0.
b. $800.
c. $1,600.
d. $2,400.
Alternate Let’s Review