ACG 4101 CHAPTER 7 hw Questions &
Answers
Which of the following might be classified as a cash equivalent? - answer30-day
treasury bill.
At the end of June, the Marquess Company factored $200,000 in accounts receivable
with Home mark Finance. The transfer is made without recourse. Homemark charges a
fee of 3% of receivables factored. During July, $150,000 of the factored receivables are
collected. What amount of loss on sale of receivables would Marquess record in June? -
answer$6,000
$200,000 × 3% = $6,000.
Case Co.'s balances in Allowance for Doubtful Accounts were $25,000 at the beginning
of the current year and $18,000 at year end. During the year, receivables of $10,000
were written off as uncollectible. What amount should Case report as bad debt expense
at year end? - answer$3,000
With a beginning balance of $25,000, the allowance would be reduced to $15,000 by
write-offs of $10,000. Since the ending balance in the allowance is $18,000, there must
have been an increase of $3,000, which would have resulted from the recognition of
bad debts expense.
During 2024, its first year of operations, Ashbaugh Industries recorded sales of
$22,100,000 and experienced returns of $1,300,000. Returns are accounted for as they
occur, with additional estimated returns accrued at the end of the period. Cost of goods
sold totaled $13,260,000 (60% of sales). The company estimates that 7% of all sales
will be returned. The year-end adjusting journal entry to account for anticipated sales
returns would include a: - answerCredit to refund liability of $247,000.
($22,100,000 × 7%) − $1,300,000 = $247,000
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,500
with credit terms 210/210 , n30/n30 . Flores uses the gross method of accounting for
sales discounts.
What is the correct entry for Flores on November 17, assuming the correct payment
was received on that date? - answerAccount Title Debit Credit
DEBIT Cash 8,330
DEBIT Sales discounts 170
CREDIT Accounts receivable 8,500
, ring the year, Carter Co. wrote off a customer's account receivable using the allowance
method for uncollectible accounts. Which statement is true about the impact the write-
off had on Carter's net income and total assets? - answerNet income did not change
and net assets did not change.
When the allowance method of recognizing uncollectible accounts is used, which of the
following statements is true regarding the impact a collection of an account previously
written off would have on Accounts Receivable and Allowance for Doubtful Accounts
balances? - answerAccounts Receivable would not change and Allowance for Doubtful
Accounts would increase.
When the allowance method of recognizing bad debt expense is used, the following
transactions would have the following effect on the allowance account:
Recognize Bad Debt-Expense Write Off a Specific Account-Reinstate an
AccountPreviously Written Off
a.Increase Increase Increase
b.Increase Decrease Increase
c.Decrease Increase Increase
d.Increase Decrease Decrease - answerOption b
Calistoga Produce estimates bad debt expense at 0.40% of credit sales. The company
reported accounts receivable and allowance for uncollectible accounts of $478,000 and
$1,610, respectively, at December 31, 2023. During 2024, Calistoga's credit sales and
collections were $334,000 and $316,000, respectively, and $1,520 in accounts
receivable were written off.
Calistoga's accounts receivable at December 31, 2024, are: - answer$494,480.
Explanation
Accounts receivable, 1/1/2024 $ 478,000
Credit sales $ 334,000
Collections (316,000)
Write-offs (1,520)
Accounts receivable, 12/31/2024 TOTAL = $ 494,480
$ 478,000+$ 334,000-(316,000)- (1,520)=$ 494,480
Rusty Hardware makes only cash sales. It began 2024 with a credit balance of $33,000
in the refund liability account. Sales during 2024 were $700,000. Rusty estimates that
5% of all sales will be returned. During 2024, customers returned merchandise for credit
of $30,000 to their accounts.
What is the balance in the refund liability account at the end of 2024? - answer$38,000
Explanation
$33,000 + ($700,000 × 5%) − $30,000
Answers
Which of the following might be classified as a cash equivalent? - answer30-day
treasury bill.
At the end of June, the Marquess Company factored $200,000 in accounts receivable
with Home mark Finance. The transfer is made without recourse. Homemark charges a
fee of 3% of receivables factored. During July, $150,000 of the factored receivables are
collected. What amount of loss on sale of receivables would Marquess record in June? -
answer$6,000
$200,000 × 3% = $6,000.
Case Co.'s balances in Allowance for Doubtful Accounts were $25,000 at the beginning
of the current year and $18,000 at year end. During the year, receivables of $10,000
were written off as uncollectible. What amount should Case report as bad debt expense
at year end? - answer$3,000
With a beginning balance of $25,000, the allowance would be reduced to $15,000 by
write-offs of $10,000. Since the ending balance in the allowance is $18,000, there must
have been an increase of $3,000, which would have resulted from the recognition of
bad debts expense.
During 2024, its first year of operations, Ashbaugh Industries recorded sales of
$22,100,000 and experienced returns of $1,300,000. Returns are accounted for as they
occur, with additional estimated returns accrued at the end of the period. Cost of goods
sold totaled $13,260,000 (60% of sales). The company estimates that 7% of all sales
will be returned. The year-end adjusting journal entry to account for anticipated sales
returns would include a: - answerCredit to refund liability of $247,000.
($22,100,000 × 7%) − $1,300,000 = $247,000
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,500
with credit terms 210/210 , n30/n30 . Flores uses the gross method of accounting for
sales discounts.
What is the correct entry for Flores on November 17, assuming the correct payment
was received on that date? - answerAccount Title Debit Credit
DEBIT Cash 8,330
DEBIT Sales discounts 170
CREDIT Accounts receivable 8,500
, ring the year, Carter Co. wrote off a customer's account receivable using the allowance
method for uncollectible accounts. Which statement is true about the impact the write-
off had on Carter's net income and total assets? - answerNet income did not change
and net assets did not change.
When the allowance method of recognizing uncollectible accounts is used, which of the
following statements is true regarding the impact a collection of an account previously
written off would have on Accounts Receivable and Allowance for Doubtful Accounts
balances? - answerAccounts Receivable would not change and Allowance for Doubtful
Accounts would increase.
When the allowance method of recognizing bad debt expense is used, the following
transactions would have the following effect on the allowance account:
Recognize Bad Debt-Expense Write Off a Specific Account-Reinstate an
AccountPreviously Written Off
a.Increase Increase Increase
b.Increase Decrease Increase
c.Decrease Increase Increase
d.Increase Decrease Decrease - answerOption b
Calistoga Produce estimates bad debt expense at 0.40% of credit sales. The company
reported accounts receivable and allowance for uncollectible accounts of $478,000 and
$1,610, respectively, at December 31, 2023. During 2024, Calistoga's credit sales and
collections were $334,000 and $316,000, respectively, and $1,520 in accounts
receivable were written off.
Calistoga's accounts receivable at December 31, 2024, are: - answer$494,480.
Explanation
Accounts receivable, 1/1/2024 $ 478,000
Credit sales $ 334,000
Collections (316,000)
Write-offs (1,520)
Accounts receivable, 12/31/2024 TOTAL = $ 494,480
$ 478,000+$ 334,000-(316,000)- (1,520)=$ 494,480
Rusty Hardware makes only cash sales. It began 2024 with a credit balance of $33,000
in the refund liability account. Sales during 2024 were $700,000. Rusty estimates that
5% of all sales will be returned. During 2024, customers returned merchandise for credit
of $30,000 to their accounts.
What is the balance in the refund liability account at the end of 2024? - answer$38,000
Explanation
$33,000 + ($700,000 × 5%) − $30,000
