TRUE/FALSE 1) The accounts receivable method to estimate bad debts obtains the e
ID: 2583837 • Letter: T
Question
TRUE/FALSE 1) The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable. 1) 2) The expense recognition (matching) principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period. 2) 3) A company borrowed $10,000 by signing a 180-day promissory note at 10%. The maturity value of the note is S11,000 4) For legal reasons, it is not advisable to accept a note receivable in exchange for an overdue account receivable. 4) 5) The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the higher the likelihood of collection. 5) Problem 6) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a $900 debit. The journal entry to record the adjustment would be for what dollar amount? TRUE/FALSE. 7) The percent of sales method for estimating bad debts uses only income statement account balances to estimate bad debts. 7) 8) Notes receivable are classified as current asset regardless of the time to maturity. 8) Problem 9) Uniform Supply accepted a $4,800, 90-day, 9% note from Tracy Janitorial on October 17, The accrued interest on the note on Dec 31 is? TRUE/FALSE 10) When using the allowance method of accounting for uncollectible accounts, the would be recorded as a debit to Cash and a credit to Bad Debts Expense. 10 recovery of a bad debtExplanation / Answer
1) True Both methods can be used to estimate the Allwance for doubtful Accounts.
2) True - Expenses can also be recognised on accrual basis and hence accrued interest can be recorded at the end of each accounting period.
3) False - Generally the rate of interest is provided per annum only. So the actual maturity value is $10,500 ($10,000 + $500 accrued interest ($10,000 x 10% x 180/360)
4) False - Note receivable is an written promise (or assurance) to receive cash from one or more future dates.Some companies follows this practise of converting overdue receivables into notes receivable in order to provide some more time to debtors.
5) False - the longer a receivable is past due, the lower the likelihood of collection
6) Bad debts Dr $ 2,700
Allowance for doubtful debts Cr $2,700
(Additional allowance provided to account for 4% provision on uncollectible. The total amount to provide $3,600 ($90,000 x 4%), Amount already in allowance $ 900. Balance provision created $ 2,700 ($3,600 - $900)
7) True
8) False - Note receivable upto one year is treated as Current assets. Note receivable or part of note receivable due after one year is treated as long term assets
9)The accrued interest as on 31 Dec 17 is $ 90 (Annual interest due $432 ( $4,800 x 9%). No of days interest to accrue - 75 days (from 17 Oct to 31 Dec). Accrued interest is $432 x 75/360)
10) False. The journal entries to record the recovery is a) Accounts receivable debit to Allowance credit (to reinstate the balance) and then B) cash debit to Accounts receivable credit (to record the amount realised).
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