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Exam 5: Receivables and Sales

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Question 71

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Allowance for Uncollectible Accounts is:

A) An expense account.
B) A contra asset account.
C) A contra revenue account.
D) A liability account.

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Question 72

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The direct write-off method violates the matching principle.

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Question 73

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Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc. wrote off Andrew Green's $2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ The effect of writing off an account receivable as a bad debt under the allowance method.

Customers' accounts that we no longer consider collectible are referred to as uncollectible accounts (or bad debts).

Discuss the differences between the allowance method and the direct write-off method for recording uncollectible accounts. Which of the two is acceptable under financial accounting rules?

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) . An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

One disadvantage of the allowance method (over the direct write-off method) for recording uncollectible accounts is that it generally matches bad debt expense with the revenue it helped to generate.

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12?

On February 1, 2012, a company loans one of its employees $20,000 and accepts a nine-month, 8% note receivable. Calculate the amount of interest revenue the company will recognize in 2012.

A company has the following accounts receivable and estimates of uncollectible accounts: Compute the total estimated uncollectible accounts.

Calculate the missing amount for each of the following notes receivable.

On December 31, 2012, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year-end adjustment. What adjustment should Mark Inc. record for the estimated bad debts on December 31, 2012?

Richard LLC accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation?

At the end of the year, a company reports a balance in its Allowance for Uncollectible Accounts of $1,400 (debit) before any year-end adjustment. The company estimates future uncollectible accounts to be 3% of credit sales for the year. Credit sales for the year total $280,000. Record the adjustment for the allowance for uncollectible accounts using the percentage-of-credit-sales method.

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense.

A company has the following balances on December 31, 2012, before any year-end adjustments: Accounts Receivable = $80,000; Allowance for Uncollectible Accounts = $1,100 (credit). The company estimates uncollectible accounts based on an aging of accounts receivable as shown below: Record the adjustment for uncollectible accounts on December 31, 2012.

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation?

Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. This transaction would include a:

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (credit) in Allowance for Uncollectible Accounts. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for the year should be: