Deck 8: Accounting for Receivables

Question 1

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from net sales.

Answer 1

False

Question 2

Under the allowance method, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.

Answer 2

False

Question 3

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Answer 3

False

Question 4

Allowance for Doubtful Accounts is a contra asset account.

Question 5

The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships.

Question 6

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

Question 7

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

Question 8

Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.

Question 9

Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

Question 10

Trade receivables occur when two companies trade or exchange notes receivables.

Question 11

Other receivables include nontrade receivables such as loans to company officers.

Question 12

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 13

The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing.

Question 14

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.

Question 15

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

Question 16

An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.

Question 17

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

Question 18

If a retailer assesses a finance charge on the amount owed by a customer, Accounts Receivable is debited for the amount of the interest.

Question 19

Accounts receivable are the result of cash and credit sales.

Question 20

Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts.

Question 21

The receivable that is usually evidenced by a formal instrument of credit is a(n)

A) trade receivable.
B) note receivable.
C) accounts receivable.
D) income tax receivable.

Question 22

The account Allowance for Doubtful Accounts is closed out at the end of the year.

Question 23

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.

Question 24

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.

Question 25

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Question 26

The accounts receivable turnover is computed by dividing total sales by the average net receivables during the year.

Question 27

Interest is usually associated with

A) accounts receivable.
B) notes receivable.
C) doubtful accounts.
D) bad debts.

Question 28

In order to accelerate the receipt of cash from receivables, owners may sell the receivables to another company for cash.

Question 29

A note is dishonored when it is not fully paid at maturity.

Question 30

Short-term receivables are reported in the current assets section before temporary investments.

Question 31

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 32

A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services.

Question 33

Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the financial statements.

Question 34

The Allowance for Doubtful Accounts is a liability account.

Question 35

Claims for which formal instruments of credit are issued as proof of the debt are

A) accounts receivable.
B) interest receivable.
C) notes receivable.
D) other receivables.

Question 36

The two key parties to a note are the maker and the payee.

Question 37

The maturity date of a 1-month note receivable dated June 30 is July 30.

Question 38

When counting the exact number of days to determine the maturity date of a note, the date of issue is included but the due date is omitted.

Question 39

Receivables may be sold because they may be the only reasonable source of cash.

Question 40

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt.

Question 41

A customer charges a treadmill at Annie's Sport Shop. The price is $4,000 and the financing charge is 6% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the finance charge?

A) $8
B) $20
C) $80
D) $240

Question 42

Three accounting issues associated with accounts receivable are

A) depreciating, returns, and valuing.
B) depreciating, valuing, and collecting.
C) recognizing, valuing, and disposing.
D) accrual, bad debts, and disposing.

Question 43

Which one of the following is not a primary problem associated with accounts receivable?

A) Depreciating accounts receivable
B) Recognizing accounts receivable
C) Valuing accounts receivable
D) Disposing of accounts receivable

Question 44

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the

A) direct write-off method.
B) percentage of receivables basis.
C) percentage of receivables basis and direct write-off method.
D) None of these choices are correct.

Question 45

Trade accounts receivable are valued and reported on the balance sheet

A) in the investment section.
B) at gross amounts less sales returns and allowances.
C) at net realizable value.
D) only if they are not past due.

Question 46

A customer charges a treadmill at Annie's Sport Shop. The price is $4,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Annie's Sport Shop to record the finance charge are

A) Accounts Receivable Cash
B) Cash Finance Receivable
C) Accounts Receivable Interest Payable
D) Accounts Receivable Interest Revenue

Question 47

Under the allowance method, writing off an uncollectible account

A) affects only balance sheet accounts.
B) affects both balance sheet and income statement accounts.
C) affects only income statement accounts.
D) is not acceptable practice.

Question 48

Syfy Company on July 15 sells merchandise on account to Eureka Co. for $5,000, terms 2/10, n/30. On July 20 Eureka Co. returns merchandise worth $2,000 to Syfy Company. On July 24 payment is received from Eureka Co. for the balance due. What is the amount of cash received?

A) $2,900
B) $2,940
C) $3,000
D) $5,000

Question 49

Which of the following practices by a credit card company results in lower interest charges to the cardholder?

A) The card company states interest as a monthly percentage rather than an annual percentage.
B) The card company allows a grace period before interest is accrued.
C) The card company allows cardholders to skip payments on their cards.
D) The card company calculates finance charges from the date of purchase to the date the amount is paid.

Question 50

If a department store fails to make the entry to accrue the finance charges due from customers,

A) accounts receivable will be overstated.
B) interest revenue will be understated.
C) interest expense will be overstated.
D) interest expense will be understated.

Question 51

The term "receivables" refers to

A) amounts due from individuals or companies.
B) merchandise to be collected from individuals or companies.
C) cash to be paid to creditors.
D) cash to be paid to debtors.

Question 52

Lifetime sells softball equipment. On November 14, they shipped $3,000 worth of softball uniforms to Palos Middle School, terms 2/10, n/30. On November 21, they received an order from Tinley High School for $1,800 worth of custom printed bats to be produced in December. On November 30, Palos Middle School returned $300 of defective merchandise. Lifetime has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30?

A) $2,700
B) $3,000
C) $4,500
D) $4,800

Question 53

If a company fails to record estimated bad debts expense,

A) cash realizable value is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

Question 54

Notes or accounts receivables that result from sales transactions are often called

A) sales receivables.
B) non-trade receivables.
C) trade receivables.
D) merchandise receivables.

Question 55

Which of the following would be considered as an unlikely occurrence?

A) Manufacturer offers a cash discount to a wholesaler.
B) Wholesaler offers a cash discount to a retailer.
C) Retailer offers a cash discount to a customer.
D) All of these answers are correct.

Question 56

Which of the following would require a compound journal entry?

A) To record merchandise returned that was previously purchased on account.
B) To record sales on account.
C) To record purchases of inventory when a discount is offered for prompt payment.
D) To record collection of accounts receivable when a cash discount is taken.

Question 57

A cash discount is usually granted to all of the following except

A) retail customers.
B) retailers.
C) wholesalers.
D) All of these answers are correct.

Question 58

Which of the following receivables would not be classified as an "other receivable"?

A) Advance to an employee
B) Refundable income tax
C) Notes receivable
D) Interest receivable

Question 59

When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when

A) a sale is made.
B) an account becomes bad and is written off.
C) management estimates the amount of uncollectibles.
D) a customer's account becomes past-due.

Question 60

The net amount expected to be received in cash from receivables is termed the

A) cash realizable value.
B) cash-good value.
C) gross cash value.
D) cash-equivalent value.

Question 61

When an account is written off using the allowance method, the

A) cash realizable value of total accounts receivable will increase.
B) cash realizable value of total accounts receivable will decrease.
C) allowance account will increase.
D) cash realizable value of total accounts receivable will stay the same.

Question 62

A reasonable amount of uncollectible accounts is evidence

A) that the credit policy is too strict.
B) that the credit policy is too lenient.
C) of a sound credit policy.
D) of poor judgments on the part of the credit manager.

Question 63

If an account is collected after having been previously written off,

A) the allowance account should be debited.
B) only the control account needs to be credited.
C) both income statement and balance sheet accounts will be affected.
D) there will be both a debit and a credit to accounts receivable.

Question 64

The cash realizable value is the difference between the

A) accounts receivable balance and the allowance account balance.
B) net sales and the allowance account balance.
C) accounts receivable balance and bad debt expense.
D) net sales and bad debt expense.

Question 65

The net amount expected to be received in cash from receivables is called the

A) gross realizable value.
B) gross cash value.
C) allowance value.
D) cash (net) realizable value.

Question 66

The allowance method of accounting for uncollectible accounts is required if

A) the company makes any credit sales.
B) bad debts are significant in amount.
C) the company is a retailer.
D) the company charges interest on accounts receivable.

Question 67

Bad Debt Expense is considered

A) an avoidable cost in doing business on a credit basis.
B) an internal control weakness.
C) a necessary risk of doing business on a credit basis.
D) avoidable unless there is a recession.

Question 68

Bad Debt Expense is reported on the income statement as

A) part of cost of goods sold.
B) reducing gross profit.
C) an operating expense.
D) a contra-revenue account.

Question 69

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded

A) in the year after the credit sale is made.
B) in the same year as the credit sale.
C) as each credit sale is made.
D) when an account is written off as uncollectible.

Question 70

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

A) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B) debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D) debit to Loss on Credit Sales Revenue and a credit to Accounts Receivable.

Question 71

Allowance for Doubtful Accounts on the balance sheet

A) is offset against total current assets.
B) increases the cash realizable value of accounts receivable.
C) appears under the heading "Other Assets."
D) is offset against accounts receivable.

Question 72

An alternative name for Bad Debt Expense is

A) Deadbeat Expense.
B) Uncollectible Accounts Expense.
C) Collection Expense.
D) Credit Loss Expense.

Question 73

Two methods of accounting for uncollectible accounts are the

A) allowance method and the accrual method.
B) allowance method and the net realizable method.
C) direct write-off method and the accrual method.
D) direct write-off method and the allowance method.

Question 74

When an account becomes uncollectible and must be written off,

A) Allowance for Doubtful Accounts should be credited.
B) Accounts Receivable should be credited.
C) Bad Debt Expense should be credited.
D) Sales Revenue should be debited.

Question 75

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

A) when a credit sale is past due.
B) at the end of each accounting period.
C) whenever a pre-determined amount of credit sales have been made.
D) when an account is determined to be uncollectible.

Question 76

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

A) will increase income in the period it is collected.
B) will decrease income in the period it is collected.
C) requires a correcting entry for the period in which the account was written off.
D) does not affect income in the period it is collected.

Question 77

A debit balance in the Allowance for Doubtful Accounts

A) is the normal balance for that account.
B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
C) indicates that actual bad debt write-offs have been less than what was estimated.
D) cannot occur if the percentage of sales method of estimating bad debts is used.

Question 78

An aging of a company's accounts receivable indicates that $14,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a

A) debit to Bad Debt Expense for $14,000.
B) debit to Allowance for Doubtful Accounts for $12,900.
C) debit to Bad Debt Expense for $12,900.
D) credit to Allowance for Doubtful Accounts for $14,000.

Question 79

Under the allowance method of accounting for uncollectible accounts,

A) the cash realizable value of accounts receivable is greater before an account is written off than after it is written off.
B) Bad Debt Expense is debited when a specific account is written off as uncollectible.
C) the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.
D) Allowance for Doubtful Accounts is closed each year to Income Summary.

Question 80

The best managed companies will have

A) no uncollectible accounts.
B) a very strict credit policy.
C) a very lenient credit policy.
D) some accounts that will prove to be uncollectible.