Accounts Receivable
Medium Test
Medium Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. sales discounts is a revenue
b. sales discounts is an operating expense
c. sales discounts is a contra-revenue
d. sales discounts is an other expense
Answer
a. an assignment
b. with recourse
c. without recourse
d. a pledge
Answer
a. increase
b. decrease
c. not change
d. it depends on the current balance in the allowance account
Answer
a. a selling expense
b. a contra – revenue account
c. an administrative expense
d. an other expense
Answer
a. the realization principle
b. the revenue recognition principle
c. the matching principle
d. the going concern principle
Answer
a. the cumulative total the company does not expect to collect
b. the historical % of sales not collected x current period sales
c. the historical % of accounts receivable not collected x current period sales
d. the historical % of accounts written-offs x total accounts receivable
Answer
a. the difference in the total the company does not expect to collect at the end of the period and the current unadjusted balance in the allowance account.
b. the historical % of sales not collected x current period sales
c. the historical % of accounts receivable not collected x current period sales
d. the historical % of accounts written-offs x total accounts receivable
Answer
a. a debit to accounts receivable and a credit to cash only
b. a debit to accounts receivable and a credit to the allowance account and then a debit to cash and a credit to accounts receivable
c. a credit to accounts receivable and a debit to the allowance account and then a debit to cash and a credit to accounts receivable
d. a debit to the allowance account and a credit to bad debt expense
Answer
a. collecting from a customer
b. providing goods to a customer
c. an account that is written off
d. both b. and c.
Answer
receivable was $3,000 and the ending balance of accounts receivable is $2,700. How much cash was collected from customer during the period?
a. $ 300
b. $10,300
c. $ 9,700
d. $13,000
Answer
Debit | Credit | |
Accounts receivable | $500,000 | |
Allowance for Uncollectible Accounts | 10,000 | |
Sales (98% on account) | $2,000,000 |
The beginning balance of accounts receivable was $470,000.
Write-offs during the period totaled $32,000.
Prepare the journal entries to record
A. Total sales during the period
B. Cash collections during the period
C. Write-offs during the period
D. Bad debt expense given historical write-offs were 3% of sales
E. Bad debt expense given historical write-offs were 5% of accounts receivable and D. was not recorded.
Answer
Accounts Receivable 1,960,000
Cash 40,000
Sales 2,000,000
B.
Cash 1,898,000
Accounts Receivable 1,898,000
Collections are recorded to receivables, so use the accounts receivable account to determine the amount:
Beginning accounts receivable 470,000
+ credit sales only 1,960,000
– collections ??
– write-offs (32,000)
= Ending accounts receivable 500,000
Collections must be 1,898,000 for ending accounts receivable to be 500,000
C.
Allowance for uncollectible accts 32,000
Accounts Receivable 32,000
D.
Bad Debt Expense 58,800
Allowance for uncollectible accts 58,800
Credit Sales x historical % of sales = Bad debt expense
1,960,000 x .03 = 58,800
The amount calculated is the amount of bad debt expense recorded
(% of sales is the easy method because the current balance in the allowance account does not matter)
E.
Bad Debt Expense 35,000
Allowance for uncollectible accounts 35,000
Ending accounts Receivable x historical % of A/R = Ending balance in allowance
500,000 x .05 = 25,000
The amount that must be recorded to get the ending balance to 25,000 is computed as follows:
Beginning allowance balance ??not given
– Write-offs (32,000)
= balance before adjustment 10,000
+ bad debt expense ??
= balance allowance acct must be (25,000)
The bad debt balance must be (35,000). The allowance account is a contra asset and must have a negative ending balance. A debit balance (positive) will only be an unadjusted amount.
Answer
– allowance for uncollectible accts (25,000)
= Net Accounts Receivable 475,000
Amounts on the balance sheet are always the final ending balance in the accounts.
Estimated % UnCollectible |
||
Current | $560,000 | 3 % |
30 Days Past Due | $120,000 | 15% |
60 Days Past Due | $ 40,000 | 20% |
90+ Days Past Due | $ 38,000 | 35% |
Total | $758,000 |
Credit sales for the year totaled $5,500,000. The company estimates that 4% of total sales will be uncollectible. The “allowance for uncollectible accounts” account had a normal balance of $82,000 on January 1st. $47,000 of uncollectible accounts was written off during the year. The company uses the % of sales method at the end of each month during the year and the accounts receivable (aging) method to get the allowance as correct as possible at the end of the year.
A. Using the % of sales method, prepare the journal entry to record uncollectible
accounts expense. (Make one journal entry for the entire year)
B. Record the journal entry that was made to write-off uncollectible accounts.
C. Using the % of accounts receivable (aging) method, prepare the journal entry to record uncollectible accounts expense at the end of the year to true up your estimates during the year.
D. How would the balance sheet report accounts receivable on December 31st?
Answer
Credit sales | 5,500,000 |
x historical % sales | x .04 |
= Bad debt expense | 220,000 |
Bad Debt Expense 220,000
Allowance for uncollectible accounts 220,000
Increase bad debt expense
Increase the allowance account
13.B.
Allowance for uncollectible accounts 47,000
Accounts receivable 47,000
Decrease the allowance account
Decrease accounts receivable
Balance | x | % uncollectible | = Amount uncollectible |
560,000 | .03 | 16,800 | |
120,000 | .15 | 18,000 | |
40,000 | .20 | 8,000 | |
38,000 | .35 | 13,300 | |
Total estimated uncollectible | 56,100 |
56,100 must be the ending credit balance in the allowance account
First year of operations beginning balance of the allowance account equals 0.
The adjustment to bad debt is computed as follows:
Beginning allowance balance | (82,000) |
+ bad debt expense % sales | (220,000) |
– write-offs | 47,000 |
+ bad debt expense % a/r | ?? |
= ending allowance balance | (56,100) |
The allowance account must be decreased (debit) by $198,900 to get to the ending balance to 56,100. Bad debt expense is decreased for the same amount
13.C.
Allowance for uncollectible accounts 198,900
Bad Debt Expense 198,900
Too much expense was recorded during the year using the % of sales method and the expense must be decreased.
13.D.
Accounts Receivable | 758,000 |
– Allowance for U.A. | (56,100) |
= Net Accounts Receivable | 701,900 |
A. with recourse
B. without recourse
Answer
500,000 x 1.8% = 9,000
Compute the estimated uncollectible amount:
500,000 x 5% = 25,000
Compute the amount received initially:
500,000 x 95% = 475,000
Compute the amount to be received later from factor:
500,000 x 5% = 25,000
14.A. With recourse:
Cash | 466,000 |
Loss on sale of A/R | 34,000 ** |
Receivable from factor | 25,000 |
Recourse Liability | 25,000 |
Accounts Receivable | 500,000 |
** The loss is equal to the fee plus the estimated uncollectible amount.
14.B. Without recourse:
Cash | 466,000 |
Loss (fee) | 9,000 |
Receivable from factor | 25,000 |
Accounts Receivable | 500,000 |
Record all required entries related to accounts receivable for the year.
Answer
There are 4 transactions that are recorded related to accounts receivable, in this order:
1) credit sales for the current period
2) collections from customers
3) write-offs
4) estimate of bad debt expense
and you must record the account that was paid that was previously written off.
1)
Accounts Receivable 875,000
Sales 875,000
2)
Cash 832,000
Accounts Receivable 832,000
3)
Allowance for Uncollectible Accts 7,000
Accounts Receivable 7,000
4)
Allow for Uncollectible Accts 2,765
Bad Debt Expense 2,765
Collection of the account previously written off:
Accounts Receivable 765
Allowance for uncollectible accounts 765
Cash 765
Accounts receivable 765
4)
Bad debt expense is recorded to the allowance account, so use this account to determine the amount recorded:
Beginning allowance account (22,000)
+ – Bad debt expense ??
– Write-offs 7,000
+ Write –off reversals (765)
Ending allowance account (13,000)
Bad debt expense must decrease $2,765 in order for allowance balance to be $13,000.