Chapter 9 Practice Questions

Accounting for Receivables

Short Questions

(1) Receivables are frequently classified as:

(a) accounts receivable, company receivables, and other receivables.
(b) accounts receivable, notes receivable, and employee receivables.
(c) accounts receivable and general receivables.
(d) accounts receivable, notes receivable, and other receivables.

(2) Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms
2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On
June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash
received?
(a) $700.
(b) $680.
(c) $686.
(d) None of the above.

(3) Which of the following approaches for bad debts is best described as a balance sheet
method?
(a) Percentage-of-receivables basis.
(b) Direct write-off method.
(c) Percentage-of-sales basis.
(d) Both percentage-of-receivables basis and direct write-off method.

(4) Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts
before any adjustments are made at the end of the year. Based on review and aging of its
accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables
are uncollectible. The amount of bad debt expense which should be reported for the year is:
(a) $5,000.
(b) $55,000.
(c) $60,000.
(d) $65,000.

(5) Use the same information as in Question 4, except that Hughes has a debit balance of
$5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of
the year. In this situation, the amount of bad debt expense that should be reported for the
year is:
(a) $5,000.
(b) $55,000.
(c) $60,000.
(d) $65,000.

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PRACTICE QUESTIONS
Question 1
On May 1, Wilton sold merchandise on account to Bates for $50,000 terms 3/15, net 45. On
May 4, Bates returns merchandise with a sales price of $2,000. On May 16, Wilton receives
payment from Bates for the balance due. Prepare journal entries to record the May
transactions on Wilton’s books.

1 May Accounts Receivable—Bates Dr 50,000

Sales Revenue Cr 50,000

4 May Sales Returns and Allowances Dr 2,000

Accounts Receivable—Bates Cr 2,000

16 May Cash ($48,000 - $1,440) Dr 46,560

Sales Discounts ($48,000 x .03) Cr 1,440
Accounts Receivable—Bates Cr 48,000

Question 2
Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The
company uses the percentage-of-sales basis. If Allowance for Doubtful Accounts has a credit
balance of $15,000 before adjustment, what is the balance after adjustment? Record the
journal entries for the allowance.

1.5% of net sales = 800,000 x 1.5% = 12,000

Existing cr balance = 15,000 plus additional of 12,000, total is 27,000

Journal Entry:
Baddebt expense Dr 12,000
Allowance for Doubtful Debts Cr 12,000

Question 3
The ledger of Nuro Company at the end of the current year shows Accounts Receivable
$180,000, Sales Revenue $1,800,000, and Sales Returns and Allowances $60,000.

(a) If Nuro uses the direct write-off method to account for uncollectible accounts, journalize
the adjusting entry at December 31, assuming Nuro determines that Willie’s $2,900 balance is
uncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of $4,300 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1 % of net sales, and (2) 10% of accounts receivable.

(c) If Allowance for Doubtful Accounts has a debit balance of $410 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.

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Question 4
The following selected transactions relate to Dylan Company.
Prepare the journal entries for the transactions. (Ignore entries for cost of goods sold.)

Mar. 1 Sold $20,000 of merchandise to Potter Company, terms 2/10, n/30.

Mar 11 Received payment in full from Potter Company for balance due on existing accounts
receivable.

Mar 12 Accepted Juno Company’s $20,000, 6-month, 12% note for balance due.

Mar 13 Made Dylan Company credit card sales for $13,200.

Mar 15 Made Visa credit card sales totaling $6,700. A 3% service fee is charged by Visa.

Apr. 11 Sold accounts receivable of $8,000 to Harcot Factor. Harcot Factor assesses a service
charge of 2% of the amount of receivables sold.

Apr 13 Received collections of $8,200 on Dylan Company credit card sales and added finance
charges of 1.5% to the remaining balances.

May 10 Wrote off as uncollectible $16,000 of accounts receivable. Dylan uses the percentage-
of-sales basis to estimate bad debts.

June 30 Credit sales recorded during the fi rst 6 months total $2,000,000. The bad debt
percentage is 1% of credit sales. At June 30, the balance in the allowance account is $3,500
before adjustment.

July 16 One of the accounts receivable written off in May was from J. Simon, who pays the
amount due, $4,000, in full.

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Question 5
At the end of 2017, Carpenter Co. has accounts receivable of $700,000 and an allowance for
doubtful accounts of $54,000. On January 24, 2018, the company learns that its receivable
from Megan Gray is not collectible, and management authorizes a write-off of $6,200.

(a) Prepare the journal entry to record the write-off.

(b) What is the cash realizable value of the accounts receivable (1) before the write-off and (2)
after the write-off?
(c ) On March 4, 2018, Carpenter Co. receives payment of $6,200 in full from Megan Gray.
Prepare the journal entries to record this transaction.

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 a) Allowance for Doubtful Accounts..................................................... Dr 6,200
Accounts Receivable—Gray.................................................. Cr 6,200

(b) (1) Before Write-Off (2) After Write-Off

Accounts receivable $700,000 $693,800

Allowance for doubtful
accounts 54,000 47,800
Cash realizable value $646,000 $646,000

(c )
Accounts Receivable—Gray ......................................................................... 6,200
Allowance for Doubtful Accounts......................................................... 6,200

Cash ................................................................................................ 6,200

Accounts Receivable—Gray ............................................................... 6,200