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.

Date Debit Credit

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 $____________.

 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.

Date Debit Credit

(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?
 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.

Date Debit Credit

(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

 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.
Customer Total Not yet Number of Days Past Due
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
1,150 300 300 250 200 100
% uncollectible 1% 5% 10% 25% 50%
Total Estimated (a) $143 $3 $15 $25 $ 50 $50
Uncollectible
Amounts

(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)