Ask Me Help Desk - Financial Accounting!

I have a bunch of accounting problems due soon and I can't figure some of them out. Please help!

1. Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful accounts?

a. debit Uncollectible Accounts Expense, $800; credit Allowance for Doubtful Accounts, $800
b. debit Uncollectible Accounts Expense, $14,200; credit Allowance for Doubtful Accounts, $14,200
c. debit Allowance for Doubtful Accounts, $800; credit Uncollectible Accounts Expense, $800
d. debit Allowance for Doubtful Accounts, $14,200; credit Uncollectible Accounts Expense, $14,200

2. The balance in Allowance for Doubtful Accounts must be carefully considered prior to the end of the year adjustment when applying which method?

a. direct write off method
b. estimate based on sales
c. estimate based on analysis of receivables
d. both (B) and (C)

3. A 60-day, 10% note for $8,000, dated April 15, is received from a customer on account. The face value of the note is

a. $8600
b. $7200
c. $8800
d. $8000

4. A company uses the estimate of sales method to account for uncollectible accounts. When the firm writes off a specific customer's account receivable

a. total current assets are reduced
b. total expenses for the period are increased
c. total current assets are reduced and total expenses are increased
d. there is no effect on total current assets or total expenses

You do not need to double post and I doubt that anyone is going to give you answers to your homework. Ask your teacher if you have questions! That is their job!

I didn't mean to double post. I realized that I put it in the wrong category and I tried to move it.

It is cool. I have done that before too. If I knew how to merge threads, I would have merged them. :)

Can I tell you what I think the answers are and you can walk me through them?

We are not here just to answer your homework for you. Please show us your attempts to answer them - and since they're multiple choice, with reasons. Then someone can help you.

You can tell me what you think the answers are and I can give you the correct answer. I am not really good at explaining how to do things. I am not a very good teacher, I just know how to do them, but I am sure that once you have put some effort into this then one of the experts may come along to explain. I can message them to do help you walk through it.

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Originally Posted by morgaine300

We are not here just to answer your homework for you. Please show us your attempts to answer them - and since they're multiple choice, with reasons. Then someone can help you.

As I was posting you were posting. :) I was going to come message you to help me explain if they attempt to do it.

problem 1 I think the answer is B because I need to bring the credit balance of $800 to a balance of $15000. Debiting uncollectible accounts expense $14200 and cr allowance for doubtful accounts would be the correct adjustment
problem 2, I think the answer is A but I really am not sure why
problem 3 is C because face value is what you would get when the bond matures, and 10% of 8000 is 800. 800+8000 = 8800
problem 4 is a but again I'm not sure why.

You have the first answer right. The other three are wrong. I can tell you that the last one is D, because the company is already making the adjustments, this should be in accrued so when the actual entry is made, it should be made to the accrued not effecting the assets or expenses.

I know the other two answers, but I think that morgaine needs to come along and explain them to you, I want you to learn from this, not just get an easy answer to the problem. It is very important to make sure you understand these things espically if you are getting a degree in Accounting. You will need to use them in your career.

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problem 1 i think the answer is B because I need to bring the credit balance of $800 to a balance of $15000. Debiting uncollectible accounts expense $14200 and cr allowance for doubtful accounts would be the correct adjustment

That one's correct. The bad news is that it's the only one that is. See if you can re-try the rest.

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problem 2, I think the answer is A but I really am not sure why

In the direct write off method there isn't any allowance account, nor is there any adjusting entry.

Percent of sales you just figure the percent and use that in the entry. Are you taking the balance of the allowance account into considation? #1 was using analysis of receivables method. Did you take the balance of the allowance account into considation? If you can answer those, then you can get this one.

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problem 3 is C because face value is what you would get when the bond matures, and 10% of 8000 is 800. 800+8000 = 8800

First, this isn't a bond. It's true that the face value of a bond is what you're going to pay when it expires. (Not "get." You're the company. You PAY bonds back, not get them.) but this isn't a bond, so it doesn't work that way. It's a note. Look up face value and look up maturity value.

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problem 4 is a but again I'm not sure why.

What is the entry for a write-off? Look at what accounts it affects. You need to know that entry anyway so good time to look it up if you don't know it yet.

A few things. I read my textbook and I think that number 2 is c. In percent of sales you are trying to FIND the allowance for doubtful accounts, but in analysis of receivables you are focusing on the analysis of receivables.

For number three I think I am confused by the wording. Is the problem saying that 60 days after the bond is purchased it will be worth $8000? If that's the case then the answer has to be B. That's the only value which could possibly grow. But all the examples in my textbook use years as the period, which is confusing for me. If it was a year long bond, then it would look like this (8000/1.1)^1, correct? So wouldn't it be (8000/1.1)^(60/365)? I'm confused and can't seem to figure this one out.

Problem 4 D makes sense to me because you are not actually changing anything, you're just using this as a method to have the books match up, right?

Weird. I was actually on here doing this well over an hour before ANB's post showed up saying the first one was right. I posted my answer and that post wasn't there yet. That's happened twice now. We weren't actually posting at the same time. There's some kind of delay going on here for some odd reason.

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A few things. I read my textbook and I think that number 2 is c. In percent of sales you are trying to FIND the allowance for doubtful accounts, but in analysis of receivables you are focusing on the analysis of receivables.

Correct answer. Reasoning a little off, because your answer is focused on the allowance account versus the receivables account. The question is asking for which method is the balance of the allowance account important. In both cases, you're trying to find the dollar amount to use in the adjusting entry. Look at question #1. When you're doing analysis of receivable, you're given the balance you want in the allowance account. In order to get the entry, you have to subtract from what's already there. In the end, it's the entry you're after. But notice you need to pay attention to the balance in the allowance account in order to do that. When doing percentage of sales, the balance already there is not relevant to get the entry. You get your percent and that is the entry. You don't even need to look at the balance in the account.

Which means the balance of the allowance account is important to analysis of receivable, but not to percent of sales. (And certainly not to direct write off method.)

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For number three I think i am confused by the wording. Is the problem saying that 60 days after the bond is purchased it will be worth $8000? If that's the case then the answer has to be B. That's the only value which could possibly grow. But all the examples in my textbook use years as the period, which is confusing for me. If it was a year long bond, then it would look like this (8000/1.1)^1, correct? So wouldn't it be (8000/1.1)^(60/365)? I'm confused and can't seem to figure this one out.

You're complicating it. And it's not a bond, darn it. :D Probably the part confusing you is that you're getting a note on account. You have to understand what that means. It's not saying 60 days after anything... the 60 days hasn't gone by yet. It's sort of like saying you got cash on account. On account is an account receivable that a customer had with you. But instead of getting payment on account, you're getting a note, an IOU. It's replacing the account receivable with a note receivable. (It's an actual written promissory note with terms, interest, etc.) You are just now getting it. They are right now giving you this note in replacement for the account receivable. 60 days hasn't gone by yet. And even if not for that, it says the "note" is $8000. The note itself doesn't include interest - it only states the terms of the interest. It doesn't say they are giving you money - it says they're giving you a note.

Make any better sense?

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Problem 4 D makes sense to me because you are not actually changing anything, you're just using this as a method to have the books match up, right?

Well, you aren't changing any totals. And no, it's not about the books matching up. If you're thinking of the matching concept, that's the adjusting entry. This is an actual write-off which isn't about matching anything. It's because you got a bankruptcy notice for Joe Blow Company, figure you're never getting paid, so you're dumping the account as it appears worthless at this point. That isn't about matching anything.

When you do a write off, the entry credits the amount out of accounts receivable. It debits allowance, which takes it out of there also. You just removed a bad debt. The point of the question is what is the net realizable value? That's the receivables less the allowance - the amount you think you will collect. If receivables is $1000 and the allowance is $100, you have $900 net realizable value. You think you will collect $900. If you then write off Joe Blow Company's account of $50, you now have $950 of receivables and $50 of allowance. And you still have $900 net realizable value. Because the amount you think you WILL collect hasn't change.

Since NET receivables remains the same, current assets remain the same. A write-off using the allowance method doesn't affect expenses at all.

As many times as I've written all this stuff, you think some publisher could pay me for a textbook by now. :p