Chapter 8- Bad Debt Expense

October 21, 2012

  1. What are 3 advantages of extending credit to business customers?
  1. ______arises from sales of goods or services on credit
  1. ______is a formal written contract outlining the terms by which a company will receive amount owed, including bad debt.
  1. What is the main difference between an account receivable and a note receivable?
  1. The ______is a method of accounting that reduces accounts receivable for an estimate of uncollectible accounts.
  1. What is the two step process of the allowance method?
  1. ______is an estimate of the credit sales made this period that won’t ever be collected from customers.
  1. T/F Credit sales when first recorded affect both the balance sheet and income statement.
  1. What two accounts are affected when recording credit sales on account?
  1. What is the entry used when recording an estimated bad debt expense?
  1. Allowance for doubtful accounts is a ______- ______account.
  1. What effect does the adjusting entry to recognize bad debt expense for the period have on assets, expenses, net income, and stockholder’s equity?
  1. What is the entry to write-off a bad debt?
  1. Why is their no effect on the income statement for an amount that was written off?
  1. When a company using the allowance method writes off a specific customer’s account receivable from the accounting system, how many of the following are true?
  2. Total stockholder’s equity remains the same.
  3. Total assets remain the same.
  4. Total expenses remain the same.
  5. None
  6. One
  7. Two
  8. Three
  9. When using the allowance method, as Bad debt expense is recorded,
  10. Total assets remain the same and stockholder’s equity remains the same
  11. Total assets decrease and stockholder’s equity decreases
  12. Total assets increase and stockholder’s equity decreases
  13. Total liabilities increase and stockholder’s equity decreases
  14. Which of the following best describes the proper presentation of accounts receivable in the financial statements?
  15. Accounts receivable plus the Allowance for doubtful accounts in the asset section of the balance sheet
  16. Accounts receivable is the asset section of the balance sheet and the Allowance for doubtful accounts in the expense section of the income statement
  17. Accounts receivable less Bad Debt Expense in the asset section of the balance sheet
  18. Accounts receivable less the Allowance for Doubtful Accounts in the asset section of the balance sheet.
  19. If the allowance for doubtful accounts opened with a $10,000 balance, ended with an adjusted balance of $20,000, and included write-offs of $5,000 during the period, what was the amount of Bad Debt Expense?
  20. $5,000
  21. $10,000
  22. $15,000
  23. Cannot be determined
  1. What are the two methods used to estimate the amount of bad debt expense to be recorded?
  1. What is difference between the two methods?
  1. What are the three steps used in the aging of accounts receivable method?
  1. Innovative Tech, Inc. uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1-30 days old, $75,000; (2) 31-90 days old, $10,000; and (3) more than 90 days old $4,000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 1 %; (2) 15%, and (3) 40%, respectively. At December 31, 2009 (end of the current year), the Allowance for doubtful accounts balance was $100 (credit) before the end of period adjusting entry is made.
  1. Prepare a schedule to estimate an appropriate year end balance for the Allowance for doubtful accounts.
  1. Prepare the appropriate Bad debt expense adjusting entry for the year 2009.
  1. Show how the various accounts related to accounts receivable should be shown on the December 31, 2009, balance sheet.
  1. Using the % of Credit Sales Method: If Pac Sun had credit sales in the current year of $1,836,400 and had experienced bad debt loss of .25% of credit sales in prior years, what would the estimated current year’s bad debt expense be? And what is the journal entry to record this estimate?