Deck 7: Accounting for Receivables

Question 1

How would accountants estimate the amount of a company's uncollectible accounts expense?

A) Consider new circumstances that are anticipated to be experienced in the future.
B) Compute as a percentage of credit sales.
C) Consult with trade association and business associates.
D) All of these answer choices are correct.

Answer 1

All of these answer choices are correct.

Question 2

Hancock Medical Supply Co.,earned $160,000 of revenue on account during Year 1,its first year of operation.During Year 1,Hancock collected $128,000 of cash from its receivables accounts.The company did not write-off any uncollectible accounts.It estimates that it will be unable to collect 1% of revenue on account.What is the net realizable value of receivables that will be reported on the balance sheet at December 31,Year 1?

A) $30,400
B) $30,720
C) $32,000
D) $30,000

Answer 2

$30,400

Question 3

Hoff Company uses the allowance method.An account that had been previously written-off as uncollectible was recovered.How do the two parts of the recovery (reinstate receivable and collect the receivable)affect the elements of the financial statements when the two parts are considered together?

A) Increase total assets and stockholders' equity
B) Increase total assets and decrease total liabilities
C) Decrease total liabilities and increase stockholders' equity
D) Has no effect on total assets, total liabilities or stockholders' equity

Answer 3

Has no effect on total assets, total liabilities or stockholders' equity

Question 4

[The following information applies to the questions displayed below.]
The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.

-What is the amount of uncollectible accounts expense that will be recognized on the Year 1 income statement?

A) $5,700
B) $1,320
C) $4,080
D) $54,000

Question 5

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

A) Allowance for doubtful accounts
B) Uncollectible accounts expense
C) The present value of accounts receivable
D) Net realizable value

Question 6

How does the year-end adjustment to recognize uncollectible accounts expense affect the elements of the financial statements?

A) Decrease total assets and decrease stockholders' equity.
B) Increase total assets and decrease stockholders' equity.
C) Increase total liabilities and increase stockholders' equity.
D) Decrease total liabilities and increase stockholders' equity.

Question 7

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900,respectively.During Year 2,Allegheny wrote off $1,500 of Uncollectible Accounts.Using the percent of receivables method,Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600.What amount will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

A) $2,200
B) $1,500
C) $700
D) $1,600

Question 8

[The following information applies to the questions displayed below.]
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-What is the amount of uncollectible accounts expense that will be reported on the Year 2 income statement?

A) $310
B) $725
C) $745.50
D) $550

Question 9

Which of the following reflects the effect of the year-end adjustment to record estimated uncollectible accounts expense using the allowance method?

A) Option A
B) Option B
C) Option C
D) Option D

Question 10

[The following information applies to the questions displayed below.]
The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.

-The balance in Accounts Receivable at the beginning of the year amounted to $16,000.During the year,$64,000 of credit sales were made to customers.If the ending balance in Accounts Receivable amounted to $10,000,and uncollectible accounts expense amounted to $4,000,what is the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement?

A) $66,000
B) $64,000
C) $80,000
D) None of these answers are correct.

Question 11

Which of the following is a true statement about a company that uses the allowance method?

A) Uncollectible Accounts Expense is recorded when a receivable is written off.
B) Uncollectible accounts are not recorded until the amount becomes significant.
C) The net realizable value of its accounts receivable is shown on the balance sheet.
D) None of these answer choices are correct.

Question 12

[The following information applies to the questions displayed below.]
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-Which of the following describes the effects of writing off the uncollectible accounts?

A) Increase assets and stockholders' equity
B) Increase assets and decrease stockholders' equity
C) Decrease assets and stockholders' equity
D) Does not affect assets or stockholders' equity

Question 13

[The following information applies to the questions displayed below.]
The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.

-What is the net realizable value of Miller's receivables at the end of Year 1?

A) $54,000
B) $49,920
C) $59,700
D) $48,300

Question 14

[The following information applies to the questions displayed below.]
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-What effect will recognizing the uncollectible accounts expense for Year 2 have on the elements of the financial statements?

A) Increase total assets and retained earnings
B) Decrease total assets and increase retained earnings
C) Decrease total assets and net income
D) Increase total assets and decrease net income

Question 15

Domino Company ages its accounts receivable to estimate uncollectible accounts expense.Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800,respectively.During Year 2,the company wrote off $4,640 in uncollectible accounts.In preparation for the company's estimate of uncollectible accounts expense for Year 2,Domino prepared the following aging schedule:

What amount will be reported as uncollectible accounts expense on the Year 2 income statement?

A) $6,132
B) $1,512
C) $7,292
D) $4,640

Question 16

[The following information applies to the questions displayed below.]
On January 1, Year 2 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account.

-What is the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows?

A) $97,000
B) $104,000
C) $89,520
D) $95,060

Question 17

[The following information applies to the questions displayed below.]
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During Year 2, Kincaid reported $72,500 of credit sales, wrote off $550 of receivables as uncollectible, and collected cash from receivables amounting to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

-What is the net realizable value of receivables that will be reported on Kincaid's Year 2 balance sheet?

A) $29,075
B) $27,725
C) $28,950
D) $28,400

Question 18

Which of the following is the term commonly used to describe the practice of reporting the net realizable value of receivables in the financial statements?

A) Cash flow method.
B) Allowance method.
C) Direct write-off method.
D) Accrual method.

Question 19

On January 1,Year 1,the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800.On January 15,Year 1,an $800 uncollectible account was written-off.What is the net realizable value of accounts receivable immediately after the write-off?

A) $36,200
B) $33,400
C) $35,000
D) $34,200

Question 20

[The following information applies to the questions displayed below.]
On January 1, Year 2 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account.

-What is the amount of uncollectible accounts expense recognized on the Year 2 income statement?

A) $320
B) $1,000
C) $2,080
D) $1,940

Question 21

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

A) The account is a contra account.
B) The account is a liability.
C) The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables.
D) The account is increased by an estimate of uncollectible accounts expense.

Question 22

Which of the following is (are)the term(s)used to describe the person responsible for making payment on the due date of a promissory note?

A) Lender or maker
B) Maker or debtor
C) Borrower
D) Borrower or maker or debtor

Question 23

Which of the following is not a significant difference between the allowance method and the direct write-off method?

A) One method requires writing off uncollectible accounts and the other does not.
B) One method conforms to GAAP and the other typically does not.
C) One method reports net realizable value on the balance sheet and the other does not.
D) One method requires the estimation of uncollectible accounts and the other does not.

Question 24

Which of the following is not an advantage of accepting credit cards from retail customers?

A) The acceptance of credit cards tends to increase sales.
B) The credit card company performs credit worthiness assessments.
C) There are fees charged for the privilege of accepting credit cards.
D) The credit card company assumes the cost of slow collections and write-offs.

Question 25

[The following information applies to the questions displayed below.]
On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

-Assume that the Loudoun Corporation uses the direct write-off method.Which of the following correctly describes the effect of the write-off of the customer's account on Loudoun's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 26

What is the effect of recognizing $7,500 of uncollectible accounts expense under the direct write-off method?

A) Assets and liabilities increase
B) Assets and stockholders' equity increase
C) Assets and stockholders' equity decrease
D) There is no effect on total assets, liabilities or stockholders' equity

Question 27

[The following information applies to the questions displayed below.]
The Yankee Corporation has recently begun to accept credit cards. On July 7, Year 1, Yankee made a credit card sale of $600. The credit card company charges a fee of 3% for handling a credit card transaction.

-Which of the following correctly describes the effect of the collection of cash from the credit card company on the financial statements of Yankee Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 28

Which of the following best describes the percent of receivables method?

A) Income statement approach
B) Direct write-off approach
C) Credit sales approach
D) Balance sheet approach

Question 29

[The following information applies to the questions displayed below.]
The Yankee Corporation has recently begun to accept credit cards. On July 7, Year 1, Yankee made a credit card sale of $600. The credit card company charges a fee of 3% for handling a credit card transaction.

-Which of the following correctly shows the effects of the sale on July 7?

A) Option A
B) Option B
C) Option C
D) Option D

Question 30

[The following information applies to the questions displayed below.]
On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

-Which of the following correctly states the effect of Loudoun's recording the reestablishment of the receivable on April 4,Year 2?

A) Option A
B) Option B
C) Option C
D) Option D

Question 31

[The following information applies to the questions displayed below.]
On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

-Which of the following correctly states the effect of the adjustment dated December 31,Year 1,on the elements of the financial statements of the Loudoun Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 32

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1,Year 1.The one-year note carried a 6% rate of interest.What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2,respectively?

A) $960 in Year 1 and $0 in Year 2
B) $0 in Year 1 and $960 in Year 2
C) $240 in Year 1 and $720 in Year 2
D) $720 in Year 1 and $240 in Year 2

Question 33

When is it acceptable to use the direct write-off method?

A) If the dollar amount of uncollectible accounts is not material.
B) If most uncollectible accounts do not occur in the period of sale.
C) If most sales are made to other businesses.
D) All of these answer choices are correct.

Question 34

Which accounting concept can be used by some companies to justify the use of the direct write-off method?

A) The entity concept
B) The materiality concept
C) The going concern concept
D) The monetary principle

Question 35

Buttercup Florist uses the allowance method to account for uncollectible accounts.Unable to collect a $150 account from a customer,Buttercup determined it was uncollectible.How would the write-off of this account affect the elements of the company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 36

Elliston Company accepted credit card payments for $10,000 of services provided to customers.The credit card company charges a 3% fee for handling the transaction.Which of the following describes the effect of this transaction?

A) Increase revenue by $9,700
B) Increase assets by $10,000
C) Increase stockholders' equity (retained earnings) by $9,700
D) Increase net income by $10,000

Question 37

If the allowance method is used,how does recording the recovery of an uncollectible account affect the elements of the financial statements? (Hint: Consider the effect of both the reinstatement and the collection of the receivable taken together.)

A) No effect on total assets or stockholders' equity
B) Increase stockholders' equity
C) Decrease total assets
D) Increase total assets and stockholders' equity

Question 38

[The following information applies to the questions displayed below.]
On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

-Which of the following correctly states the effect of Loudoun Company writing off the customer's account?

A) Option A
B) Option B
C) Option C
D) Option D

Question 39

Which of the following is a cost of extending credit to customers?

A) Uncollectible accounts expense
B) Lost sales
C) Fees paid to credit card companies
D) Explicit interest

Question 40

[The following information applies to the questions displayed below.]
On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050.

-Which of the following correctly states the effect of recording the collection of the reestablished receivable on April 4,Year 2?

A) Option A
B) Option B
C) Option C
D) Option D

Question 44

How is the average number of days to collect accounts receivable computed?

A) Accounts Receivable ÷ Net income
B) 365 ÷ Accounts receivable turnover ratio
C) Accounts Receivable ÷ 365
D) Sales ÷ Net accounts receivable

Question 47

Which of the following is not considered a "cost" of extending credit to customers?

A) The opportunity cost of lost interest
B) Keeping the records for accounts receivable
C) The increased sales resulting from the extension of credit
D) The possibility of unpaid accounts

Question 48

Alberta Company accepts a credit card as payment for $450 of services provided for the customer.The credit card company charges a 4% fee for handling the transaction.How does this this transaction affect the elements of the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 49

The accounting records of the Harris and Schubert Companies contained the following account balances:
$$\begin{array} { l c c } & \text { Sales } & \text { Accounts receivable } \\\text { Harris } & \$ 300,000 & \$ 60,000 \\\text { Schubert } & 180,000 & 40,000\end{array}$$
Which of the following statements is true?

A) Schubert Company has a lower likelihood of lost income resulting from credit costs.
B) The company with the higher accounts receivable turnover ratio will also have the longer average number of days to collect accounts receivable.
C) The accounts receivable for Schubert Company turns over 6 times each year.
D) The average number of days to collect accounts receivable for Harris is 73 days.

Question 50

How is the accounts receivable turnover ratio computed?

A) Sales ÷ Net accounts receivable
B) Net accounts receivable ÷ Sales
C) Cost of goods sold ÷ Inventory
D) 365 days ÷ Net accounts receivable

Question 52

Glebe Company accepted a credit card account receivable in exchange for $1,100 of services provided to a customer.The credit card company charges a 5% fee for handling the transaction.What effect will the collection of cash from the credit card company have on the elements of the financial statements?

A) Increase assets by $1,045
B) Decrease assets and stockholders' equity by $55
C) Increase assets by $1,100
D) None of these answer choices are correct

Question 53

How is a company's operating cycle determined?

A) Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
B) Adding the average days in inventory to the average days in receivables.
C) Dividing cost of goods sold by average inventory.
D) Dividing 365 days by the difference in the inventory turnover and receivable turnover.

Question 55

Rhodes Company reports the following information for the Year 1 fiscal year:

Determine the average number of days it takes Rhodes to collect its accounts receivable.(Round intermediate calculations to 2 decimal places.)

A) 37
B) 14
C) 39
D) 20

Question 56

The following information is available for Blankenship Company for the most recent year.
$\begin{array}{lr}\text { Sales } & \$ 1,100,000 \\\text { Cost of goods sold } & 760,000 \\\text { Gross profit } & 340,000 \\\text { Net income } & 85,000 \\\text { Accounts receivable (average \# of days to sell inventory) } & 90,000 \\\text { Inventory (50 days) } & 105,000\end{array}$
What was Blankenship's operating cycle for the most recent year? (Round to the nearest whole day.)

A) 30 days
B) 50 days
C) 80 days
D) 120 days

Question 57

What does the accounts receivable turnover ratio measure?

A) How quickly accounts receivable turn into cash
B) How quickly the accounts receivable balance increases
C) Average balance of accounts receivables
D) How quickly inventory turns into accounts receivable

Question 58

Which of the following businesses would most likely have the longest operating cycle?

A) A chain of coffee shops
B) A national sporting goods chain
C) An antiques dealer
D) A Christmas tree farm

Question 61

Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected.

Question 62

Some accountants believe that the percent of revenue method for estimating uncollectible accounts expense is superior to the percent of receivables method because it is more conservative.

Question 63

When an uncollectible account receivable is written off under the allowance method,the amount of total assets is unchanged.

Question 64

For a company that uses the allowance method,the write-off of an uncollectible account receivable is an asset use transaction.

Question 65

The collection of an account receivable is an asset source transaction.

Question 66

When a company receives payment from a customer whose account was previously written off,the account is reinstated and the net realizable value of Accounts Receivable increases.

Question 67

The face value of Accounts Receivable plus the balance in the Allowance for Doubtful Accounts is equal to the net realizable value of the receivables.

Question 68

The net realizable value of accounts receivable decreases when an account receivable is written off.

Question 69

When a company receives payment from a customer whose account was previously written off,the customer's account should be reinstated.

Question 70

If a company estimates uncollectible accounts based on a percentage of receivables,the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.

Question 71

Willis Company had $200,000 in credit sales for Year 1,and it estimated that 2% of the credit sales would not be collected.The balance in Accounts Receivable at the end of the year was $38,000.Willis had never used the allowance method to account for its receivables until Year 1.The net realizable value of its accounts receivable at the end of the year was $34,000.

Question 73

If a company uses the percent of receivables method to estimate uncollectible accounts,the company will first determine the required ending balance in Allowance for Doubtful Accounts; the Uncollectible Accounts Expense will be the difference between that amount and the balance in the Allowance for Doubtful Accounts.

Question 74

The direct write-off method does a better job of matching revenues and expenses than does the allowance method.

Question 75

The longer an account receivable has been outstanding,the less likely it is to be collected.

Question 76

The best estimate of the amount of cash a company expects to collect from its accounts receivable is the face value of the receivables.

Question 77

The adjustment to recognize uncollectible accounts expense is an asset use transaction.

Question 78

Most companies report receivables on their balance sheets at the net realizable value.

Question 79

The net realizable value of accounts receivable is the amount of receivables a company expects to collect.

Question 80

The adjustment to recognize uncollectible accounts expense does not affect the net realizable value of receivables.