Chapter 8 Question Review 1
Chapter 8 Questions
Multiple Choice
1. When customers make purchases with a national credit card, the retailer
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the credit card company.
2. The two methods of accounting for uncollectible accounts are the direct write-off method and the
a. Accrual Method
b. Net Realizable Method
c. Bad Debt Method
d. Allowance Method
3. A 90-day note dated April 20 would mature on
a. July 19
b. July 21
c. July 20
d. July 18
4. Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is
debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
5. An aging of a company's accounts receivable indicates that $6,000 are estimated to be uncollectible.
If Allowance for Doubtful Accounts has a $2,000 debit balance, the adjustment to record bad debts for
the period will require a
a. debit to Bad Debt Expense for $8,000.
b. debit to Allowance for Doubtful Accounts for $8,000.
c. debit to Bad Debt Expense for $4,000.
d. credit to Allowance for Doubtful Accounts for $4,000.
6. The face value of a note refers to the amount
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. at which the note receivable is recorded.
d. remaining after a service charge has been deducted.
7. The interest on a $10,000, 9%, 90-day note receivable is
a. $225.
b. $900.
c. $75.
d. $150.
Chapter 8 Question Review 2
8. Doane Company receives a $10,000, 3-month, 6% promissory note from Ray Company in settlement
of an open accounts receivable. What entry will Doane Company make upon receiving the note?
a. Notes Receivable 10,150
Accounts Receivable—Ray Company 10,150
b. Notes Receivable 10,150
Accounts Receivable—Ray Company 10,000
Interest Revenue 150
c. Notes Receivable 10,000
Interest Receivable 150
Accounts Receivable—Ray Company 10,000
Interest Revenue 150
d. Notes Receivable 10,000
Accounts Receivable—Ray Company 10,000
9. A debit balance in the Allowance for Doubtful Accounts
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of receivables method of estimating bad debts is used.
10. When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is
recorded
a. in the year after the credit sale is made.
b. in the same year as the credit sale.
c. as each credit sale is made.
d. when an account is written off as uncollectible.
11. To record estimated uncollectible accounts using the allowance method, the adjusting entry would
be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.
12. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $6,000
credit before adjustment, what is the amount of bad debt expense for that period?
a. $45,000
b. $39,000
c. $51,000
d. $6,000
Chapter 8 Question Review 3
13. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $6,000
debit before adjustment, what is the balance after adjustment?
a. $45,000
b. $51,000
c. $39,000
d. $6,000
14. Non-trade receivables should be reported separately from trade receivables. Why is this statement
either true or false?
a. It is true because trade receivables are current assets and non-trade receivables are long term.
b. It is false because all current receivables must be grouped together in one account.
c. It is true because non-trade receivables do not result from business operations and should not be
included with accounts receivable.
d. It is false because management can decide how to report receivables.
15. In 20XX Wilkinson Company had net credit sales of $2,250,000. On January 1, 20XX, Allowance for
Doubtful Accounts had a credit balance of $54,000. During 20XX, $90,000 of uncollectible accounts
receivable were written off. Past experience indicates that the allowance should be 10% of the balance
in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was
$600,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31,
20XX?
a. $ 60,000
b. $ 25,000
c. $ 96,000
d. $ 90,000
Chapter 8 Question Review 4
EXERCISES
1. Strickman Company uses the allowance method for estimating uncollectible accounts. Prepare
journal entries to record the following transactions:
January 5 Sold merchandise to Sue Land for $1,800, terms n/15.
April 15 Received $400 from Sue Land on account.
August 21 Wrote off as uncollectible the balance of the Sue Land account when she declared
bankruptcy.
October 5 Unexpectedly received a check for $650 from Sue Land.
2. Compute the maturity value as indicated for each of the following notes receivable.
A. A $9,000, 6%, 3-month note dated July 20.
Maturity value $____________.
B. A $16,000, 9%, 150-day note dated August 5.
Maturity value $____________.
Date
Debit
Credit
Chapter 8 Question Review 5
3. Merry Co. sells Christmas angels. Merry determines that at the end of December, they have the
following aging schedule of Accounts Receivable:
Customer Total Number of Days Past Due
Not yet due 1–30 31–60 61–90 Over 90
K. Brant $500 $300 $200
D. Eaton 300 100 200
S Klein 150 50 100
C. Sheen 200 200
? 300 300 250 200 100
% uncollectible 1% 5% 10% 25% 50%
Total Estimated Uncollectible
Amounts ? ? ? ? ? ?
(a) Compute the total estimated uncollectible amounts.
(b) Compute the net receivables based on the above information at the end of December (There was
no beginning balance in the Allowance for Doubtful Accounts).
Chapter 8 Question Review 6
4. The December 31, 20XX balance sheet of the Kramer Company had Accounts Receivable of $650,000
and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2017, the following
transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections
from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000
were collected.
(a) Journalize the 20XX transactions.
(b) If the company uses the percentage of receivables basis to estimate bad debt expense and
determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the
adjusting entry at December 31, 20XX?
Date
Debit
Credit
Chapter 8 Question Review 7
5. Prepare journal entries to record the following transactions entered into by the Merando
Company:
20X1
June 1 Received a $10,000, 6%, 1-year note from Dan Gore as full payment on his account.
Nov. 1 Sold merchandise on account to Barlow, Inc., for $14,000, terms 2/10, n/30.
Nov. 5 Barlow, Inc., returned merchandise worth $1,000.
Nov. 9 Received payment in full from Barlow, Inc.
Dec. 31 Accrued interest on Gore's note.
20X2
June 1 Dan Gore honored his promissory note by sending the face amount plus interest.
Date
Debit
Credit
Chapter 8 Question Review 8
6. Erickson Company had a $300 credit balance in Allowance for Doubtful Accounts at December
31, 20XX, before the current year's provision for uncollectible accounts. An aging of the accounts
receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $170,000 1%
1–30 days past due 15,000 3%
31–60 days past due 12,000 6%
61–90 days past due 5,000 15%
Over 90 days past due 9,000 30%
Total Accounts Receivable $211,000
(a) Prepare the adjusting entry on December 31, 20XX, to recognize bad debts expense.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account
had a $300 debit balance before the current year's provision for uncollectible accounts. Prepare
the adjusting entry for the current year's provision for uncollectible accounts.
Date
Debit
Credit
Date
Debit
Credit
Chapter 8 Question Review 9
Chapter 8 Solutions
Multiple Choice Solutions
1. B
2. D
3. A
4. D
5. A
6. C
7. A
8. D
9. B
10. B
11. B
12. B
13. A
14. C
15. C
Exercise Solutions
1.
Date
Debit
Credit
Accounts Receivable – S. Land
Jan. 5
1,800
Sales Revenue
1,800
Cash
Apr. 15
400
Accounts Receivable- S. Land
400
Allowance for Doubtful Accounts
Aug. 21
1,400
Accounts Receivable- S. Land
1,400
Accounts Receivable – S. Land
Oct. 5
650
Allowance for Doubtful Accounts
650
Cash
Oct. 5
650
Accounts Receivable- S. Land
650
Chapter 8 Question Review 10
Chapter 8 Solutions
Exercise Solutions (Cont.)
2.
A. Maturity value: $9,135
Interest = $9,000 x 6% x (3/12) = $135
$135 + $9,000 = $9,135 (Face val. + (Face val. × 6% × 3/12)
B. Maturity value: $16,600
Interest = $16,000 x 9% x (150/360) = $600
$600 + $16,000 = $16,600 (Face val. + (Face val. × 9% × 150/360)
3.
Total
Not yet
due
Number of Days Past Due
1–30
31–60
61–90
Over 90
$500
$300
$200
300
100
200
150
50
100
200
200
1,150
300
300
250
200
100
1%
5%
10%
25%
50%
(a) $143
$3
$15
$25
$ 50
$50
(b) $1,150 – $143 = $1,007
Chapter 8 Question Review 11
Chapter 8 Solutions
Exercise Solutions (Cont.)
4. (a)
Debit
Credit
Accounts Receivable
1,550,000
Sales Revenue
1,550,000
(To record credit sales)
Sales Returns and Allowances
100,000
Accounts Receivable
100,000
(To record credits to customers)
Cash
1,250,000
Accounts Receivable
1,250,000
(To record collection of receivables)
Allowance for Doubtful Accounts
35,000
Accounts Receivable
35,000
(To write off specific accounts)
Accounts Receivable
8,000
Allowance for Doubtful Accounts
8,000
(To reverse write-off of account)
Cash
8,000
Accounts Receivable
8,000
(To record collection of account)
Chapter 8 Question Review 12
Chapter 8 Solutions
Exercise Solutions (Cont.)
(b.)
Percentage of receivables basis:
Allowance For Doubtful
Accounts Receivable Accounts
Bal. 650,000 100,000 35,000 Bal. 33,000
1,550,000 1,250,000 8,000
8,000 35,000 Bal. 6,000
8,000
Bal. 815,000
Required balance ($815,000 .06) ............................................................. $48,900
Balance before adjustment ......................................................................... 6,000
Adjustment required ................................................................................. $42,900
Dec. 31 Bad Debt Expense ....................................................... 42,900
Allowance for Doubtful Accounts ......................... 42,900
((A/R end. bal. × 6%) – ADA end. bal.)
5.
Date
Debit
Credit
Notes Receivable
Jun. 1
10,000
Accounts Receivable—D. Gore
20X1
10,000
Accounts Receivable—Barlow, Inc.
Nov. 1
14,000
Sales Revenue
20X1
14,000
Sales Returns and Allowances
Nov. 5
1,000
Accounts Receivable—Barlow, Inc.
20X1
1,000
Cash
Nov. 9
12,740
Sales Discounts ($13,000 x 0.02)
20X1
260
Accounts Receivable—Barlow, Inc. (sales – ret.) × (1 – .02)
13,000
Interest Receivable
Dec. 31
350
Interest Revenue ($10,000 x 6% x (7 ÷ 12) = $350)
20X1
350
Cash
Jun. 1
10,600
Notes Receivable
20X2
10,000
Interest Receivable
350
Interest Revenue ($10,000 x 6% x (5 ÷ 12) = $250)
250
Chapter 8 Question Review 13
6.
Estimated Percentage Estimated
Uncollectible Uncollectible
Current Accounts $170,000 1% $1,700
1–30 days past due 15,000 3% 450
31–60 days past due 12,000 6% 720
61–90 days past due 5,000 15% 750
Over 90 days past due 9,000 30% 2,700
Total Accounts Receivable $211,000 $6,320*
**(A/R amounts × est. uncoll. %)
(a) Bad Debt Expense ..................................................................................... 6,020
Allowance for Doubtful Accounts ($6,320 – $300) ........................ 6,020
(To adjust the allowance account to total estimated uncollectible)
(Est. uncoll. amount – end. ADA bal.)
(b) Bad Debt Expense ..................................................................................... 6,620
Allowance for Doubtful Accounts ($6,320 + $300) ........................ 6,620
(To adjust the allowance account to total estimated uncollectible)