CHAPTER 9 — PRACTICE WORKSHEET

Classify each item.

1. a
   Amounts customers owe from buying on credit:

   a) Accounts receivable b) Notes receivable c) Interest receivable d) Sales revenue
2. b
   A written promise to pay a set amount plus interest by a date:

   a) Accounts receivable b) Notes receivable c) Allowance d) Cash

Rivertown Store makes $4,500 of Visa (national bank card) sales. Visa charges a 2% processor fee.

1. a
   Service charge (fee)
2. b
   Cash received
3. c
   Record the sale.

   Accounts available: Cash · Service Charge Expense · Sales Revenue · Accounts Receivable · Interest Revenue

Decide how uncollectibles are handled.

1. a
   The method required by GAAP when bad debts are material:

   a) Allowance method b) Direct write-off method c) Cash method d) No method
2. b
   The method that records expense only when an account is judged worthless:

   a) Allowance method b) Direct write-off method c) Aging method d) Percentage-of-sales

Summit Co. has Accounts Receivable of $500,000 and an Allowance for Doubtful Accounts of $30,000.

1. a
   Net realizable value of receivables

Cedarline Co. has net credit sales of $800,000 and estimates 1% will be uncollectible. (The allowance already has a $600 credit balance — ignore it under this method.)

1. a
   Bad debt expense
2. b
   Record the estimate.

   Accounts available: Bad Debt Expense · Allowance for Doubtful Accounts · Accounts Receivable · Sales Revenue

Harborline Co.'s aging: Not yet due $150,000 (2%); 1–30 days $40,000 (5%); 31–60 days $20,000 (10%); 61–90 days $8,000 (25%); Over 90 days $2,000 (50%).

1. a
   Estimated uncollectible — Not yet due
2. b
   Estimated uncollectible — 61–90 days
3. c
   Total estimated uncollectible (target allowance)

Harborline's aging target is $10,000. Its Allowance for Doubtful Accounts already has a $1,500 CREDIT balance.

1. a
   Bad debt expense needed
2. b
   Record the adjustment.

   Accounts available: Bad Debt Expense · Allowance for Doubtful Accounts · Accounts Receivable · Cash

Suppose instead Harborline's Allowance had a $500 DEBIT balance, with the same $10,000 aging target.

1. a
   Bad debt expense needed

Meadowbrook Co. decides a customer's $2,000 account is uncollectible. Before the write-off, Accounts Receivable is $80,000 and the Allowance is $6,000 (NRV $74,000).

1. a
   Record the write-off.

   Accounts available: Allowance for Doubtful Accounts · Accounts Receivable · Bad Debt Expense · Cash
2. b
   Net realizable value AFTER the write-off

The customer from Exercise 9 unexpectedly pays the $2,000 that was written off.

1. a
   Step 1 — reverse the write-off.

   Accounts available: Accounts Receivable · Allowance for Doubtful Accounts · Cash · Bad Debt Expense
2. b
   Step 2 — record the collection.

   Accounts available: Cash · Accounts Receivable · Allowance for Doubtful Accounts · Interest Revenue

Compute interest on each note (Interest = Face × Rate × Time).

1. a
   $6,000, 3-month, 8% note
2. b
   $12,000, 6-month, 9% note
3. c
   $10,000, 60-day, 9% note (360-day year)
4. d
   $30,000, 1-year, 10% note

Stonebridge Co. holds a $6,000, 3-month, 8% note that is paid in full at maturity.

1. a
   Interest earned
2. b
   Total cash received
3. c
   Record collection at maturity.

   Accounts available: Cash · Notes Receivable · Interest Revenue · Accounts Receivable · Bad Debt Expense

The $6,000, 3-month, 8% note above is DISHONORED at maturity, but Stonebridge still expects to collect.

1. a
   Record the dishonor.

   Accounts available: Accounts Receivable · Notes Receivable · Interest Revenue · Cash · Bad Debt Expense

On November 1, Larkfield Co. accepted a $9,000, 12-month, 10% note. It prepares statements on December 31.

1. a
   Interest earned by December 31 (2 months)
2. b
   Record the year-end accrual.

   Accounts available: Interest Receivable · Interest Revenue · Cash · Notes Receivable

Brightwater Co. has net credit sales of $900,000. Beginning net receivables were $85,000 and ending net receivables were $95,000.

1. a
   Average net receivables
2. b
   Accounts receivable turnover (times)
3. c
   Average collection period (days, 1 decimal)

Fairmont Co. has net credit sales of $600,000 and uses the percentage-of-sales method with a rate of 1.5%. Later it writes off a $3,000 account.

1. a
   Bad debt expense for the period
2. b
   Record the write-off of the $3,000 account.

   Accounts available: Allowance for Doubtful Accounts · Accounts Receivable · Bad Debt Expense · Cash