Deck 13: Accounting for Bad Debts

Question 1

A major cost of selling goods on account could be:

A)accounts payable.
B)cash shortages.
C)easy credit.
D)uncollectible accounts.

Answer 1

D

Question 2

Bad Debts Expense is:

A)included in Cost of Goods Sold.
B)considered an expense matched with revenues.
C)listed on the balance sheet.
D)not an operating expense.

Answer 2

B

Question 3

Net Realizable Value can be defined as:

A)the Gross Accounts Receivable.
B)the Current Bad Debts Expense.
C)the amount of Accounts Receivable you do not expect to collect.
D)the Gross Accounts Receivable minus the Allowance for Doubtful Accounts.

Answer 3

D

Question 4

What type of account is a Bad Debts Expense?

A)Asset
B)Expense
C)Contra Asset
D)Liability

Question 5

Estimating Bad Debts Expense is an example of:

A)recording accrued expense.
B)the balance sheet approach.
C)the matching principle.
D)recording accrued sales.

Question 6

After the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $560,000 and Allowance for Doubtful Accounts has a normal balance of $35,000.What is the net realizable value of the Accounts Receivable?

A)$525,000
B)$595,000
C)$560,000
D)The amount cannot be determined from the given information.

Question 7

Before the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $210,000 and Allowance for Doubtful Accounts has a credit balance $3,000.What is the net realizable value of the accounts receivable?

A)$213,000
B)$207,000
C)$210,000
D)$200,000

Question 8

When a customer's account is written off:

A)net realizable value of the Accounts Receivable remains the same.
B)net realizable value of the Accounts Receivable decreases.
C)net realizable value of the Accounts Receivable increases.
D)None of the above

Question 9

Under the allowance method,Bad Debt Expense is recorded:

A)as an estimate.
B)when an individual account is written off.
C)several times during the year as needed.
D)None of these answers is correct.

Question 10

Fit City estimates it will collect $3,300 of the $3,525 owed by customers.The $3,300 or the estimated collectible amount is called:

A)the Net Realizable Value.
B)the Bad Debts Allowance.
C)the Allowance for Doubtful Accounts.
D)the Gross Accounts Receivable.

Question 11

Which account is classified as a contra-asset?

A)Bad Debts Expense
B)Allowance for Doubtful Accounts
C)Sales Returns and Allowances
D)Sales Discounts

Question 12

The amount of Accounts Receivable a company expects it will collect is the:

A)Gross Accounts Receivable.
B)Bad Debts Allowance.
C)Bad Debts Expense.
D)Net Realizable Value.

Question 13

The Allowance for Doubtful Accounts is listed on the balance sheet under the caption:

A)owner's equity.
B)current liabilities.
C)current assets.
D)fixed assets.

Question 14

What type of account is an Allowance for Doubtful Accounts?

A)Asset
B)Contra-asset
C)Revenue
D)Contra-revenue

Question 15

A company uses the allowance method and expects not to collect $21,000 of sales.The journal entry to record the estimated bad debt is:

A)
$$\begin{array} { | r | l | } \hline\text { Allowance for Doubtful Accounts } & \$ 21,000 \\\hline \text { Bad Debt Expense } & \$ 21,000 \\\hline\end{array}$$
B)
$$\begin{array} { | r | l l | } \hline\text { Allowance for Doubtful Accounts } & \$ 21,000 & \\\hline \text { Accounts Receivable } & \$ 21,000 \\\hline\end{array}$$
C)
$$\begin{array} { | c | l l | } \hline\text { Bad Debt Expense } & \$ 21,000 \\\hline \text { Allowance for Doubtful Accounts } & \$ 21,000 \\\hline\end{array}$$
D)
$$\begin{array} { | c | l l | } \hline\text { Accounts Receivable } & \$ 21,000 \\\hline \text { Allowance for Doubtful Accounts } & \$ 21,000 \\\hline\end{array}$$

Question 16

The Allowance for Doubtful Accounts is adjusted:

A)each time a customer is granted credit
B)each time a customer's debt is satisfied.
C)within one year of granting credit to a customer.
D)at the end of each accounting period.

Question 17

Allowance for Doubtful Accounts is reported in which financial statement?

A)Statement of owner's equity
B)Income statement
C)Balance Sheet
D)None of these answers is correct.

Question 18

The entry to adjust for bad debts was ignored.This error would cause:

A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these is correct.

Question 19

Which of the following situations would likely result in too many uncollectible accounts?

A)The company extends credit easily.
B)The company has a strict credit policy.
C)The company has a cash only policy.
D)None of these answers is correct.

Question 20

Fit City estimates it will collect $3,300 of the $3,525 owed by customers.The difference of $225 represents the:

A)Gross Accounts Receivable.
B)the Net Realizable Value.
C)Allowance for Doubtful Accounts.
D)Value of the Current Unpaid Receivables.

Question 21

Gross Accounts Receivable is $15,000.Allowance for Doubtful Accounts has a credit balance of $300.Net credit sales for the year are $140,000.In the past,1% of credit sales had proved uncollectible.What would be the adjusted balance of the Allowance account under the income statement approach?

A)$2,400
B)$1,700
C)$1,400
D)$1,100

Question 22

Harry's Hardware estimates that approximately $1.75 out of every $100 of credit sales proves to be uncollectible.Harry calculates Bad Debts Expense using the:

A)aging the Accounts Receivable approach.
B)direct write-off method.
C)balance sheet approach.
D)income statement approach.

Question 23

A debit balance in Allowance for Doubtful Accounts indicates the estimate for Bad Debts was too low.

Question 24

Prepare a partial balance sheet for the Swanson Company at December 31,201X,from the following information:

Question 25

A company uses the allowance method and has determined a customer's bill for $2,000 must be written off.The journal entry to record the write off is:

A)
$$\begin{array} { | c | l | } \hline\text { Allowance for Doubtful Accounts } & \$ 2,000 \\\hline \text { Bad Debt Expense } & \$ 2,000 \\\hline\end{array}$$
B)
$$\begin{array} { | r | l l | } \hline\text { Allowance for Doubtful Accounts } & \$ 2,000 & \\\hline \text { Accounts Receivable } & \$ 2,000 \\\hline\end{array}$$
C)
$\begin{array}{|l|l|}\hline \text { Accounts Receivable }&\$ 2,000 \\\hline \text { Allowance for Doubtful Accounts }&\$ 2,000\\\hline \end{array}$
D)
$\begin{array}{|l|l|}\hline\text { Bad Debt Expense }&\$2,000 \\\hline \text { Allowance for Doubtful Accounts }&\$2,000\\\hline\end{array}$

Question 26

The Allowance account is a contra-revenue account.

Question 27

The adjusting entry for uncollectibles is based on an estimate.

Question 28

The current balance of Allowance for Doubtful Accounts is considered when calculating the current period's Bad Debts Expense under the following approach:

A)Balance sheet approach
B)Income statement approach
C)Direct write-off method
D)All of these answers are correct.

Question 29

Gross Accounts Receivable is $17,000.Allowance for Doubtful Accounts has a credit balance of $100.Net credit sales for the year are $120,000.In the past,2% of credit sales had proved uncollectible,and an aging of the receivables indicates $2,100 as uncollectible.What would be the adjusted balance of the Allowance account under the balance sheet approach?

A)$2,000
B)$2,500
C)$2,100
D)$2,200

Question 30

The Allowance for Doubtful Accounts is shown on the balance sheet as a contra-asset.

Question 31

Joe's Auto Repair estimates that approximately 3% of net credit sales are uncollectible.Joe's calculates Bad Debts Expense using the:

A)direct write-off method.
B)income statement method.
C)gross method.
D)balance sheet method.

Question 32

Gross Accounts Receivable is $20,000.Allowance for Doubtful Accounts has a credit balance of $400.Net credit sales for the year are $125,000.In the past,2% of credit sales had proved uncollectible,and an aging of the receivables indicates $1,500 is doubtful.Under the balance sheet approach,Bad Debts Expense for the year is:

A)$1,900.
B)$2,900.
C)$2,500.
D)$1,100.

Question 33

At December 31,201X,Brooke's Horse Stable unadjusted Allowance for Doubtful Accounts showed a credit balance of $432.An aging of the Accounts Receivable indicates probable uncollectible accounts of $1,000.The year-end adjusting entry for Bad Debts Expense:

A)includes a credit to the Allowance account for $568.
B)includes a debit to the Allowance account for $42.
C)includes a debit to the Allowance account for $822.
D)includes a credit to the Allowance account for $1,432.

Question 34

The Allowance for Doubtful Accounts is shown on the balance sheet.

Question 35

Using the aging method,estimated uncollectible accounts are $3,000.If the balance in the Allowance for Doubtful Accounts is a $600 debit before adjustment,what is the Bad Debts Expense adjustment for the period?

A)$3,000
B)$3,600
C)$2,400
D)$600

Question 36

The Allowance for Doubtful Accounts may have a debit balance before adjustment.

Question 37

Gross Accounts Receivable is $20,000.Allowance for Doubtful Accounts has a credit balance of $400.Net credit sales for the year are $125,000.In the past,2% of credit sales had proved uncollectible,and an aging of the receivables indicates $1,500 is doubtful.Under the income statement approach,Bad Debts Expense for the year is:

A)$1,900.
B)$2,900
C)$2,500.
D)$1,100.

Question 38

The normal balance of the Allowance for Doubtful Accounts account is a credit.

Question 39

The normal balance of the Bad Debts Expense account is a credit.

Question 40

Which method uses an aging of Accounts Receivable to calculate the Bad Debts Expense?

A)Income statement approach
B)Aging the Accounts Receivable approach
C)Balance sheet approach
D)Direct write-off

Question 41

The income statement approach estimates a percentage of Accounts Receivable that is uncollectible.

Question 42

If the allowance method of accounting for uncollectible receivables is used,what general ledger account is credited to write off a customer's account as uncollectible?

A)Bad Debts Expense
B)Accounts Receivable
C)Accounts Payable
D)Bad Debts Recovered

Question 43

Sylvia's,Inc. ,decreases Allowance for Doubtful Accounts $700 at year-end.As a result:

A)net assets decrease.
B)net income is unchanged.
C)net assets increase.
D)net realizable value of assets decreases.

Question 44

The balance in the Allowance for Doubtful Accounts is ignored under which of the following approaches?

A)Balance sheet approach
B)Income statement approach
C)Direct write-off approach
D)All three approaches

Question 45

Sigma reports net credit sales of $400,000.There is a credit balance of $1,000 in the Allowance for Doubtful Accounts.Uncollectible accounts are estimated to be 2.5% of net credit sales.Under the income statement approach,the adjusting entry would require a debit to Bad Debt Expense for:

A)$9,000.
B)$10,000.
C)$9,975.
D)some other number.

Question 46

The journal entry to record the estimate of uncollectible accounts includes a:

A)debit Bad Debts Expense;credit Allowance for Doubtful Accounts.
B)debit Bad Debts Expense;credit Accounts Receivable.
C)debit Allowance for Doubtful Accounts;credit Bad Debts Expense.
D)debit Sales;credit Bad Debt Expense.

Question 47

Last year,Congo Corporation had net credit sales of $690,000 and it had uncollectible accounts of $31,050.Based on last year,what would the percent of estimated uncollectible accounts be this year?

A)7)10%
B)3)55%
C)4)50%
D)45.00%

Question 48

If the allowance method of accounting for uncollectible receivables is used,what general ledger account is debited to write off a customer's account as uncollectible?

A)Allowance for Doubtful Accounts
B)Bad Debt Expense
C)Accounts Payable
D)Bad Debts Recovered

Question 49

Using the aging method,estimated uncollectible accounts are $3,000.If the balance of Allowance for Doubtful Accounts is $500 credit before adjustment,what is a Bad Debt Expense for the period?

A)$3,500
B)$2,500
C)$3,000
D)$500

Question 50

When a year-end adjustment is made for estimated bad debts:

A)net income is increased.
B)liabilities increase.
C)net assets increase.
D)net assets decrease.

Question 51

A detailed analysis of Accounts Receivable to determine how long each account has been outstanding is called:

A)aging the Accounts Receivable.
B)aging the uncollectible accounts.
C)analyzing the Accounts Receivable.
D)taking a percentage of sales on account.

Question 52

Empire has a credit balance of $450 in its Allowance for Doubtful Accounts.The balance in the Accounts Receivable account is $92,500,with $2,015 estimated to be uncollectible after aging the accounts.Under the balance sheet approach,the debit to Bad Debt Expense will be:

A)$450.
B)$2,465.
C)$2,015.
D)$1,565.

Question 53

The adjustment for bad debts using the percentage of receivables ignored the credit balance in the Allowance account.This error would cause:

A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these is correct.

Question 54

Jody Sport and Hobby's Allowance for Doubtful Accounts had an unadjusted credit balance of $600.The manager estimates that $700 of the Accounts Receivable is uncollectible.Using the balance sheet approach,the year-end adjusting entry for Bad Debts Expense:

A)includes a debit to the Bad Debt Expense account for $100.
B)includes a debit to the Bad Debts Expense account for $700.
C)includes a credit to the Bad Debts Expense account for $1,300.
D)includes a credit to the Bad Debts Expense account for $100.

Question 55

As the past due time increases for an account,the likelihood of collecting that account:

A)usually goes down
B)usually goes up.
C)Time does not affect collectibility.
D)None of the above

Question 56

Colleen's account was written off for $800.She received an inheritance from her uncle and wants to clear her account.The entry to record this is to:

A)debit Cash and credit Accounts Receivable/Colleen.
B)debit Allowances for Doubtful Accounts,credit Accounts Receivable/Maggie,debit Cash,and credit Accounts Receivable/Colleen.
C)debit Accounts Receivable/Colleen,credit Allowance for Doubtful Accounts,debit Cash,and credit Accounts Receivable/Colleen.
D)debit Accounts Receivable/Colleen,credit Allowance for Doubtful Accounts,debit Accounts Receivable/Colleen,and credit Cash.

Question 57

A notice was received from Mary,who is a customer,that she was bankrupt.If using an allowance method,the entry to write-off her balance of $1,250 would be:

A)
$\begin{array}{|l|l|}\hline\text { Bad Debt Expense } & 1,250 \\\hline \text { Allowance for Doubtful Accounts } & 1,250\\\hline\end{array}$
B)
$$\begin{array} { | c | l | } \hline \text { Accounts Receivable/Mary } & 1,250 \\\hline \text { Bad Debt Expense } & 1,250 \\\hline\end{array}$$
C)
$$\begin{array} { | c | l | } \hline \text { Allowance for Doubtful Accounts } & 1,250 \\\hline \text { Accounts Receivable/Mary } & 1,250 \\\hline\end{array}$$
D)None of the above

Question 58

After aging the Accounts Receivable,it is estimated that $2,450 will not be collected and the allowance account has an existing debit balance of $300.If Accounts Receivable is $107,000,the net receivables would be:

A)$107,000.
B)$106,900.
C)$104,550.
D)$104,250.

Question 59

After aging the receivables,Tim's Toys estimates that $1,900 will not be collected and the allowance account has a debit balance of $525.The adjusting entry would be for:

A)$1,900.
B)$525.
C)$2,425.
D)$1,375.

Question 60

The adjustment for bad debts using the percentage of receivables ignored the debit balance in the Allowance account.This error would cause:

A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these is correct.

Question 61

When it is not possible to make a reasonable estimate of uncollectible accounts,the allowance method is preferred for financial reporting purposes.

Question 62

On December 31,2015,Landscape Pros had a balance in Accounts Receivable of $25,000.Net credit sales for the year were $400,000.The Allowance for Doubtful Accounts has a credit balance of $500.Journalize the recording of the bad debt expense under the income statement approach if 3% of net credit sales is deemed uncollectible.

Question 63

On December 31,2015,Landscape Pros had a balance in Accounts Receivable of $25,000.Net credit sales for the year were $400,000.The Allowance for Doubtful Accounts has a credit balance of $500.Journalize the recording of the bad debt expense under the balance sheet approach if $1,280 is the estimated amount of uncollectible accounts.

Question 64

The general ledger controlling account for Accounts Receivable shows a debit balance of $120,000.The Allowance for Doubtful Accounts has a credit balance of $5,000.An aging report of accounts receivable accounts resulted in an estimate of $23,000 of uncollectible accounts receivable.Calculate the amount of the adjustment using the balance sheet approach.
Amount of the adjustment ________

Question 65

The direct write off approach estimates a percentage of Accounts Receivable that is uncollectible.

Question 66

The Allowance for Doubtful Accounts has a credit balance of $5,000.Net credit sales for the year were $900,000.Four percent is the estimated uncollectible based on net credit sales.Calculate the amount of the adjustment using the income statement approach.
Amount of the adjustment ________

Question 67

Determine the estimated net realizable (collectable)value:
Bad debts are estimated to be 3% of net credit sales.

Question 68

The aging of Accounts Receivable is a balance sheet approach.

Question 69

Determine the estimated net realizable (collectable)value:
Bad debts are estimated to be 1% of receivables

$ ________

Question 70

Evaluate the differences of the effect on the financial statements between the income statement approach and the balance sheet approach for estimating bad debts expense on the financial statement presentation.

Question 71

Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 6% of receivables

Question 72

Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 3% of credit sales

Question 73

Using the income statement approach,the balance in Allowance for Doubtful Accounts is taken into consideration when finding the adjustment.

Question 74

Bad Debts Expense is recorded in the year the sale was earned when using the income statement approach.

Question 75

Under the accrual method of accounting,the allowance method is generally required for financial reporting purposes.

Question 76

Using the balance sheet approach,the balance in Allowance for Doubtful Accounts is not taken into consideration when finding the adjustment.

Question 77

Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 9% of credit sales

Question 78

On December 31,2015,Landscape Pros had a balance in Accounts Receivable of $25,000.Net credit sales for the year were $400,000.The Allowance for Doubtful Accounts has a debit balance of $500.Journalize the recording of the bad debt expense under the income statement approach if 0.5% of net credit sales is deemed uncollectible.

Question 79

When making a collection,no entry was recorded to reinstate an account previously written off.The allowance method is being used.This error would cause:

A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these is correct.

Question 80

On December 31,2015,Landscape Pros had a balance in Accounts Receivable of $25,000.Net credit sales for the year were $400,000.The Allowance for Doubtful Accounts has a debit balance of $500.Journalize the recording of the bad debt expense under the balance sheet approach if $1,210 is the estimated amount of uncollectible accounts.