Deck 8: Receivables

Question 1

Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.

Answer 1

True

Question 2

When companies sell their receivables to other companies, the transaction is called factoring.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Small companies can use either the direct write-off method or the allowance method.

Question 5

Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.

Question 6

The direct write-off method records bad debt expense in the year the specific account receivable is determined to be uncollectible.

Question 7

When an account receivable that has been written off is subsequently collected, the account receivable must first be reinstated before recording the receipt of payment.

Question 8

No allowance account is used with the direct write-off method.

Question 9

Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting for uncollectible accounts.

Question 10

A disadvantage of factoring is that the company selling its receivables immediately receives cash.

Question 11

The direct write-off method records bad debt expense when an account is determined to be uncollectible.

Question 12

GAAP requires companies with a large amount of receivables to use the allowance method.

Question 13

Of the two methods of accounting for uncollectible receivables, the allowance method provides in advance for uncollectible receivables.

Question 14

The difference between the balance in Accounts Receivable and the balance in the Allowance for Doubtful Accounts is called the net realizable value of the receivables.

Question 15

When the allowance method for accounting for uncollectible receivables is used, net income is reduced when a specific receivable is written off.

Question 16

When using the percent of sales method of estimating uncollectibles, the entry to record bad debt expense includes a credit to Accounts Receivable.

Question 17

Receivables not currently collectible are reported in the investments section of the balance sheet.

Question 18

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

Question 19

Allowance for Doubtful Accounts is a liability account.

Question 20

When using the direct write-off method of accounting for uncollectible receivables, the account Allowance for Doubtful Accounts is debited when a specific account is determined to be uncollectible.

Question 21

The maturity value of a note receivable is always the same as its face value.

Question 22

A primary difference between the direct write-off and allowance method is whether or not bad debts is based on a percentage of sales.

Question 23

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $500. Credit sales for the period total $800,000. If bad debt expense is estimated at 1% of credit sales, the amount of bad debt expense to be recorded in the adjusting entry is $8,500.

Question 24

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The credit sales for the period total $500,000. If the company estimates uncollectible accounts at 1% of credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.

Question 25

When accounting for uncollectible receivables and using the percentage of sales method, the matching principle is violated.

Question 26

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of $5,000. The Accounts Receivable balance is analyzed by aging the accounts and the amount estimated to be uncollectible is $50,000. The amount to be recorded in the adjusting entry for the Bad Debt Expense is $45,000.

Question 27

The maturity value of a 12%, 60-day note for $5,000 is $5,600.

Question 28

If a promissory note is dishonored, the payee should still record interest revenue.

Question 29

In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.

Question 30

The party promising to pay a note at maturity is the maker.

Question 31

When using the analysis of receivables method for estimating uncollectible receivables, the amount computed in the analysis is usually the amount that would be recorded in the end-of-period adjusting entry.

Question 32

The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off since the beginning of the year.

Question 33

If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.

Question 34

The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.

Question 35

When a note is received from a customer on account, it is recorded by debiting Notes Receivable and crediting Accounts Receivable.

Question 36

At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $2,000. The Accounts Receivable balance is analyzed by aging the accounts and, the amount estimated to be uncollectible is $15,000. The amount to be recorded in the adjusting entry for the bad debt expense is $15,000.

Question 37

When a note is written to settle an open account, no entry is necessary.

Question 38

The interest on a 6%, 60-day note for $5,000 is $300.

Question 39

The due date of a 60-day note dated July 10 is September 10.

Question 40

The equation for computing interest on an interest-bearing note is as follows: Interest = Maturity Value × Interest Rate × Time.

Question 41

Indications that an account may be uncollectible include all of the following except

A)the customer closes its business
B)the customer is making small but regular payments
C)the customer files for bankruptcy
D)the customer cannot be located

Question 42

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

A)advance to an employee
B)interest receivable
C)refundable income tax
D)notes receivable

Question 43

The operating expense recorded from uncollectible receivables can be called all of the following except

A)accounts receivable
B)bad debt expense
C)doubtful accounts expense
D)uncollectible accounts expense

Question 44

When does an account become uncollectible?

A)when accounts receivable is converted into notes receivable
B)when a discount is available on notes receivable
C)there is no general rule for when an account becomes uncollectible
D)at the end of the fiscal year

Question 45

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

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

Question 46

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

A)nontrade receivables
B)trade receivables
C)merchandise receivables
D)sales receivables

Question 47

Selling receivables is called

A)factoring
B)sales revenue
C)a factor
D)sold receivables

Question 48

Which statement is not true?

A)Current assets are normally reported in order of their liquidity.
B)Disclosures related to receivables are reported on the financial statement notes.
C)Cash and cash equivalents are the first items reported under current assets.
D)All receivables that are expected to be realized in cash beyond 265 days are reported in the non-current assets section.

Question 49

A note receivable due in 18 months is listed on the balance sheet under the caption

A)long-term liabilities
B)fixed assets
C)current assets
D)investments

Question 50

Two methods of accounting for uncollectible accounts are the

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

Question 51

If collection of an other receivable is expected beyond one year, it is classified as a

A)noncurrent asset and reported under Other Receivables
B)current asset and reported under Other Receivables
C)current asset and reported under Investments
D)noncurrent asset and reported under Investments

Question 52

The direct write-off method of accounting for uncollectible accounts

A)emphasizes balance sheet relationships
B)is often used by small companies and companies with few receivables
C)emphasizes cash realizable value
D)emphasizes the matching of expenses with revenues

Question 53

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

Question 54

An alternative name for Bad Debt Expense is

A)collection expense
B)credit loss expense
C)uncollectible accounts expense
D)deadbeat expense

Question 55

If the direct write-off 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 Debt Expense
B)Accounts Receivable
C)Allowance for Doubtful Accounts
D)Interest Expense

Question 56

The term "receivables" includes all

A)money claims against other entities
B)merchandise to be collected from individuals or companies
C)cash to be paid to creditors
D)cash to be paid to debtors

Question 57

The accounts receivable turnover measures the length of time in days it takes to collect a receivable.

Question 58

Receivables that are expected to be collected in cash in eighteen months or less are reported in the current asset section of the balance sheet.

Question 59

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

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

Question 60

The number of days' sales in receivables is an estimate of the length of time the accounts receivable have been outstanding.

Question 61

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?

Question 62

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000. What is the net realizable value of the accounts receivable?

A)$51,000
B)$289,000
C)$340,000
D)$391,000

Question 63

On the balance sheet after adjusting entries are made, the amount shown for the Allowance for Doubtful Accounts is equal to the

A)uncollectible accounts expense for the year
B)total of the accounts receivable written off during the year
C)total estimated uncollectible accounts as of the end of the year
D)sum of all accounts that are past due

Question 64

What is the type of account and normal balance of Allowance for Doubtful Accounts?

A)contra asset, credit
B)asset, debit
C)asset, credit
D)contra asset, debit

Question 65

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

A)Uncollectible Accounts Receivable
B)Accounts Receivable
C)Allowance for Doubtful Accounts
D)Bad Debt Expense

Question 66

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

Question 67

Allowance for Doubtful Accounts has a credit balance of $2,100 at the end of the year (before adjustment), and an analysis of customers' accounts indicates uncollectible receivables of $19,700. Which of the following entries records the proper adjustment for bad debt expense?

A)debit Allowance for Doubtful Accounts, $17,600; credit Bad Debt Expense, $17,600
B)debit Allowance for Doubtful Accounts, $21,800; credit Bad Debt Expense, $21,800
C)debit Bad Debt Expense, $21,800; credit Allowance for Doubtful Accounts, $21,800
D)debit Bad Debt Expense, $17,600; credit Allowance for Doubtful Accounts, $17,600

Question 68

Allowance for Doubtful Accounts has a debit balance of $600 at the end of the year (before adjustment), and an analysis of accounts in the customers ledger indicates uncollectible receivables of $13,000. Which of the following entries records the proper adjusting entry for bad debt expense?

A)debit Bad Debt Expense, $600; credit Allowance for Doubtful Accounts, $600
B)debit Bad Debt Expense, $12,400; credit Allowance for Doubtful Accounts, $12,400
C)debit Allowance for Doubtful Accounts, $600; credit Bad Debt Expense, $600
D)debit Bad Debt Expense, $13,600; credit Allowance for Doubtful Accounts, $13,600

Question 69

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

A)liabilities decrease
B)net income is unchanged
C)total assets are unchanged
D)total assets decrease

Question 70

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

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

Question 71

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

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

Question 72

An aging of a company's accounts receivable indicates that the estimate of the uncollectible accounts totals $4,000. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record the bad debt expense for the period will require a

A)debit to Allowance for Doubtful Accounts for $3,200
B)debit to Bad Debt Expense for $3,200
C)debit to Allowance for Doubtful Accounts for $4,000
D)credit to Allowance for Doubtful Accounts for $4,000

Question 73

You have just received notice that a customer of yours with an Account Receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

A)debit Bad Debt Expense and credit Allowance for Doubtful Accounts
B)debit Bad Debt Expense and credit Accounts Receivable
C)debit Allowance for Doubtful Accounts and credit Accounts Receivable
D)debit Allowance for Doubtful Accounts and credit Bad Debt Expense

Question 74

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)Uncollectible Accounts Expense
B)Allowance for Doubtful Accounts
C)Accounts Receivable
D)Interest Expense

Question 75

An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $6,400. If Allowance for Doubtful Accounts has a $1,300 debit balance, the adjustment to record the bad debt expense for the period will require a

A)debit to Bad Debt Expense for $7,700
B)debit to Bad Debt Expense for $6,400
C)debit to Bad Debt expense for $5,100
D)credit to Allowance for Doubtful Accounts for $1,300

Question 76

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

A)debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
B)debit to Accounts Receivable 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 and a credit to Accounts Receivable

Question 77

An aging of a company's accounts receivable indicates the estimate of uncollectible receivables totals $7,900. If Allowance for Doubtful Accounts has a $700 credit balance, the adjustment to record the bad debt expense for the period will require a

A)debit to Bad Debt Expense for $8,600
B)debit to Bad Debt Expense for $7,900
C)debit to Bad Debt Expense for $7,200
D)credit to Allowance for Doubtful Accounts for $700

Question 78

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)Uncollectible Accounts Expense
B)Accounts Receivable
C)Allowance for Doubtful Accounts
D)Interest Expense

Question 79

Allowance for Doubtful Accounts has a debit balance of $1,100 at the end of the year (before adjustment), and an analysis of customers' accounts indicates uncollectible receivables of $12,900. Which of the following entries records the proper adjustment for bad debt expense?

A)debit Bad Debt Expense, $14,000; credit Allowance for Doubtful Accounts, $14,000
B)debit Allowance for Doubtful Accounts, $14,000; credit Bad Debt Expense, $14,000
C)debit Allowance for Doubtful Accounts, $11,800; credit Bad Debt Expense, $11,800
D)debit Bad Debt Expense, $11,800; credit Allowance for Doubtful Accounts, $11,800

Question 80

The Lowery Co. uses the direct write-off method of accounting for uncollectible accounts receivable. Lowery has a customer whose accounts receivable balance has been determined to likely be uncollectible. The entry to write off this account would be which of the following?

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