71. Healthy Lawn Maintenance Company
Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.
Assume that Healthy Lawn Maintenance estimates that it will not collect 2% of total credit sales in a given month. At the end of each month, it makes an adjusting entry. The aggregate effect of these entries during 2013 is as follows:
A. Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Accounts Receivable, net. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 40,000
B. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
C. Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 40,000
D. Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Accounts Receivable, gross . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 40,000
E. Accounts Receivable, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
72. Healthy Lawn Maintenance Company
Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.
If Healthy Lawn Maintenance’s customers remitted $1,900,000 in cash during 2013, it would make the following journal entries with the following aggregated amounts:
A. Accounts Receivable, Gross—specific accounts . . . . . . . . . . . . . 1,900,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .. 1,900,000
B. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1,900,000
Accounts Receivable, net—specific accounts . . . . . . . . . . .. . . . . . . 1,900,000
C. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1,900,000
Accounts Receivable, Gross—specific accounts . . . . . . . . . . . . . . . . 1,900,000
D. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1,900,000
Notes Receivable, Gross—specific accounts . . . . . . . . . . . . . . . . . . . 1,900,000
E. Notes Receivable, Gross—specific accounts . . . . . . . . . . . . . . . . . . 1,900,000
Cash . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1,900,000
73. Healthy Lawn Maintenance Company
Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.
Healthy Lawn Maintenance deems uncollectible any customer account not paid after six months. This means that every accounting period, Healthy Lawn Maintenance ascertains which accounts remained uncollected for six months, and treats these customer accounts as uncollectible by writing them off. If, during 2013, Healthy Lawn Maintenance identified accounts of specific customers totaling $20,000 with unpaid balances for six months and wrote them off, the journal entry would be as follows:
A. Bad Debt Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Accounts Receivable—gross . . . . . . . . . . . . . . . . . . . . . . . . 20,000
B. Bad Debt Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20,000
Accounts Receivable—specific accounts . . . . . . . . . . . . . . . . 20,000
C. Allowance for Uncollectibles . . . .. . .. . .. . .. . .. . .. . .. . .. . .. 20,000
Accounts Receivable—specific accounts . . . . . . . . . . . . . . . . 20,000
D. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Accounts Receivable—gross . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
E. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . .20,000
Bad Debt Expenses . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
74. Healthy Lawn Maintenance Company
Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.
The 2013 year-end balance in Accounts Receivable, Gross, for Healthy Lawn Maintenance is $1,085,000 An aging of these accounts receivable shows that the estimated uncollectible amount is $24,200. Before aging the accounts, the Allowance for Uncollectibles has a debit balance of $15,000 from writing off actual accounts during 2013. Healthy Lawn Maintenance would record the following adjusting entry at the end of 2013 to obtain a credit balance in the Allowance for Uncollectibles of $24,200:
A. Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,200
Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,200
B. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,200
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,200
C. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,200
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,200
D. Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,200
Allowance for Uncollectibles . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 39,200
E. Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
75. Recognizing revenue before the seller collects cash requires estimating the amount of uncollectible accounts with reasonable accuracy. Both U.S. GAAP and IFRS require the
A. direct method for uncollectible accounts, only.
B. direct charge off method for uncollectible accounts, only.
C. allowance method for uncollectible accounts, only.
D. allowance method and the direct charge off method for uncollectible accounts.
E. indirect method for uncollectible accounts, only.
76. Allowance for Uncollectibles contra account appears among the _____ on a firm’s balance sheet as a(n) _____.
A. liability; subtraction
B. liability; addition
C. assets; addition
D. assets; subtraction
E. shareholders’ equity; subtraction
77. When a firm decides that a particular customer account is uncollectible, it removes that account by debiting the _____ and crediting _____ This process is called writing off the account.
A. Accounts Receivable, Gross; Allowance for Uncollectibles
B. Accounts Receivable, Net; Allowance for Uncollectibles
C. Allowance for Uncollectibles; Accounts Receivable, Gross
D. Allowance for Uncollectibles; Accounts Receivable, Net
E. Bad Debt Expense; Accounts Receivable, Net
78. There are two approaches that management can use to estimate the amount of credit sales that would prove to be uncollectible, they are the _____. Over time, the two methods, correctly used, will give the same cumulative income and asset totals. U.S. GAAP and IFRS do not require firms to use one or the other, and some firms use both methods.
A. gross amount of sales procedure and the aging-of-accounts-receivable procedure.
B. percentage-of-sales procedure and the aging-of-accounts-receivable procedure.
C. percentage-of-cost of good sold procedure and the amount of accounts-receivable procedure.
D. percentage-of-cost of good sold procedure and the aging-of-notes-receivable procedure.
E. gross amount of sales procedure and the amount of accounts-receivable procedure.
79. The percentage-of-sales procedure arises from the idea that uncollectible amounts will vary with the volume of credit business. The firm estimates the appropriate percentage by studying its own experience or by inquiring into the experience of similar firms. Default rates generally fall within the range of _____of credit sales.
A. .01% to .02%
B. 1% to 2%
C. 10% to 20%
D. 21% to 30%
E. 31% to 40%
80. After the firm estimates the amount of uncollectible accounts associated with the credit sales of each period, it makes an adjusting entry to debit _____ and credit _____.
A. Bad Debt Expense; Accounts Receivable, Net
B. Bad Debt Expense; Accounts Receivable, Gross
C. Allowance for Uncollectibles; Bad Debt Expense
D. Bad Debt Expense; Allowance for Uncollectibles
E. Allowance for Uncollectibles; Accounts Receivable, Gross