Chapter 6 Cash and A/R

Question 1

Estimating Bad Debt

Is the estimation of bad debt properly found by charging the account as they are written off?

Answer 1

No

Direct Write Off

a better estimation is through the allowance method via a percentage of accounts receivable

Question 2

Allowance Method Journal Entry

Journal Entry for charging a bad debt expense

Answer 2

debit bad debts expense; credit allowance for doubtful accounts

Question 3

Allowance Method Journal Entry

Writing off an account as uncollectible under the allowance method

Answer 3

Debit allowance for doubtful accounts; credit accounts receivable

Question 4

Deposits held as compensatory balances are classified as what if separately restricted and held against Long-term credit

Hint: balance sheet

Answer 4

noncurrent assets

Question 5

Why is the allowance method preferred over the direct write-off method of accounting for bad debts

Answer 5

Improved matching of bad debt expense with revenue

Question 6

Which of these are not cash and cash equivalents: cash in bank, postdated checks, petty cash, and short-term paper with a maturity in 2 months

Answer 6

postdated checks

recognize cash on the date of the check

Question 7

Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

Answer 7

$25,400

Question 8

Beckham Company had net sales (all on account) in 2025 of $8,000,000. At December 31, 2025, before adjusting entries, the balances in selected accounts were: accounts receivable $1,000,000 debit, and allowance for doubtful accounts $2,000 debit. Beckham estimates that 3% of its accounts receivable will prove to be uncollectible. What will be reported for accounts receivable, net ( net realizable receivables) on the December 31, 2025 balance sheet?

Answer 8

$970,000

Question 9

Vasquez Corporation had a 1/1/25 balance in the Allowance for Doubtful Accounts of $40,000. During 2025, it wrote off $28,800 of accounts and collected $8,400 on accounts previously written off. The balance in Accounts Receivable was $800,000 at 1/1 and $960,000 at 12/31. At 12/31/25, Vasquez estimates that 5% of accounts receivable will prove to be uncollectible. What is bad debt expense for 2025?

Answer 9

$28,400

Question 10

Wilton Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what amount of bad debt expense will be reported on Wilton’s income statement?

Answer 10

$378,000

Question 11

AG Inc. made a $25,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?

Answer 11

Debits accounts receivable $24,500

Question 12

At the close of its first year of operations, December 31, 2025, Ming Company had accounts receivable, net of $1,620,000, after deducting the related allowance for doubtful accounts. During 2025, the company recorded bad debt expense of $270,000 and wrote off as uncollectible accounts receivable of $120,000. What is the December 31, 2025 balance in accounts receivable?

Answer 12

$1,770,000

Question 13

Kennison Company has cash in bank of $20,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of

Answer 13

$20,000

Question 14

On April 2, Kelvin Company sold $40,000 of inventory items on credit with the terms 1/10, net 30. Payment on $24,000 sales was received on April 8 and the remaining payment on $16,000 sales was received on April 27. Assuming Kelvin uses the net method of accounting for sales discounts, the entry recorded on April 27 would include a

Answer 14

debit to Cash for $16,000,credit to Accounts Receivable for $15,840 and credit to Sales Discounts Forfeited for $160.

Question 15

If a company uses the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

Answer 15

a deduction from sales in the income statement.

Question 16

Fitzgerald Company sold 800 geospatial tracking units to Whitefish Company for $600 each. Whitefish has 60 days to return the unused goods. Fitzgerald believes that a good estimate of total items that will be returned by Whitefish is 80 units. Prior to Fitzgerald’s year end, Whitefish has returned 50 units. Whitefish still has 25 days to make returns.

What amount should Fitzgerald report in the Refund Liability account related to this activity on its year-end balance sheet?

Answer 16

$18,000

Question 17

Legend Company sold $80,000 worth of goods on account to Destiny Inc. on June 20. Legend marks all goods up 25%. Destiny has 45 days to return the goods for any reason. On July 1, Destiny returns $7,000 worth of goods. Legend expects to be able to resell the returned goods at a profit.

The journal entries for Legend to record the return on July 1 included debits to

Answer 17

Sales Returns and Allowance for $7,000, and Returned Inventory for $5,600.

debit sales r+a, credit accounts rec
debit return IV, credit cogs

Question 18

Before year-end adjusting entries, Dunn Company’s account balances at December 31, 2025, for accounts receivable and the related allowance for uncollectible accounts were $1,500,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The amount of accounts receivable expected to be collected is

Answer 18

$1,375,000

Question 19

T/F: sales discounts are included in net receivables

Answer 19

false

Question 20

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will

Answer 20

offset the overdraft against the cash account balance.