Deck 13: Accounting for Bad Debts

Question 1

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 1

D

Question 2

Which account is classified as a contra-asset?

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

Answer 2

D

Question 3

1 Fit City estimates it will collect $2,300 of the $2,425 owed by customers. The difference of $125 represents the:

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

Answer 3

B

Question 4

Fit City estimates it will collect $2,300 of the $2,425 owed by customers. The estimated collectible amount is called:

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

Question 5

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

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

Question 6

Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal balance of $200,000 and Allowance for Doubtful Accounts has a debit balance $20,000. What is the net realizable value of the accounts receivable?

A)$180,000
B)$20,000
C)$220,000
D)$200,000

Question 7

When a customer's account is written off:

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

Question 8

The Allowance for Doubtful Accounts is adjusted:

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

Question 9

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 10

Which financial statement reports Allowance for Doubtful Accounts?

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

Question 11

A company uses the allowance method and expects not to collect $15,000 of sales. The journal entry to record the estimated bad debt is:

A)
B)
C)
D)

Question 12

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 are correct.

Question 13

Which of the following situations would more likely not result in bad debts?

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 are correct.

Question 14

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 15

What type of account is an Allowance for Doubtful Accounts?

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

Question 16

Estimating Bad Debts Expense is an example of:

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

Question 17

A major cost of selling goods on account could be:

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

Question 18

After the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal balance of $540,000 and Allowance for Doubtful Accounts has a normal balance of $25,000. What is the net realizable value of the Accounts Receivable?

A)$540,000
B)$565,000
C)$515,000
D)The amount cannot be determined from the given information.

Question 19

What type of account is a Bad Debts Expense?

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

Question 20

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.

Question 21

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

Question 22

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

Question 23

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

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

Question 24

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

Question 25

At December 31, 200x, Brooke's Horse Stable unadjusted Allowance for Doubtful Accounts showed a debit 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 debit to the Allowance account for $568.
B)includes a credit 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 26

The Allowance account is a contra-liability account.

Question 27

Gross Accounts Receivable is $12,000. Allowance for Doubtful Accounts has a credit balance of $600. Net sales for the year are $100,000. In the past, 2% of sales had proved uncollectible, and an aging of the receivables indicates $1,900 as uncollectible. What would be the adjusted balance of the Allowance account under the balance sheet approach?

A)$2,000
B)$1,400
C)$2,500
D)$1,900

Question 28

Gross Accounts Receivable is $10,000. Allowance for Doubtful Accounts has a credit balance of $200. Net sales for the year are $150,000. In the past, 2% of sales had proved uncollectible. What would be the adjusted balance of the Allowance account under the income statement approach?

A)$3,200
B)$2,800
C)$1,400
D)$3,000

Question 29

The Allowance for Doubtful accounts is shown on the income statement.

Question 30

Gross Accounts Receivable is $10,000. Allowance for Doubtful Accounts has a credit balance of $200. Net sales for the year are $150,000. In the past, 2% of sales had proved uncollectible, and an aging of the receivables indicates $1,200 is doubtful. Under the balance sheet approach, Bad Debts Expense for the year is:

A)$1,000.
B)$3,000.
C)$2,800.
D)$1,200.

Question 31

The adjusting entry for uncollectibles is based on an estimate.

Question 32

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)
B)
C)
D)

Question 33

Gross Accounts Receivable is $10,000. Allowance for Doubtful Accounts has a credit balance of $200. Net sales for the year are $150,000. In the past, 2% of sales had proved uncollectible, and an aging of the receivables indicates $1,200 is doubtful. Under the income statement approach, Bad Debts Expense for the year is:

A)$1,000.
B)$3,000.
C)$2,800.
D)$1,200.

Question 34

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 35

Prepare a partial balance sheet for the Meredith Company at December 31, 200x, from the following information:

Question 36

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

Question 37

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

A)direct write-off approach.
B)income statement approach.
C)balance sheet approach.
D)All of these answers are correct.

Question 38

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

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

Question 39

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

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

Question 40

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

Question 41

On December 31, 2010, Paint Pros had a balance in Accounts Receivable of $15,000. Net credit sales for the year were $450,000. The Allowance for Doubtful Accounts has a credit balance of $900. Journalize the recording of the bad debt expense under the balance sheet approach if $1,580 is the estimated amount of uncollectible accounts.

Question 42

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

Question 43

When it is possible to make a reasonable estimate of uncollectible accounts, the allowance method is preferred for financial reporting purposes.

Question 44

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 are correct.

Question 45

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

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

Question 46

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

Question 47

Using the aging method, estimated uncollectible accounts are $5,000. If the balance of Allowance for Doubtful Accounts is $1,500 credit before adjustment, what is a Bad Debt Expense for the period?

A)$3,500
B)$6,500
C)$5,000
D)$1,500

Question 48

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

Question 49

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 50

Using the income statement approach, the balance in Allowance for Doubtful Accounts is ignored.

Question 51

On December 31, 2010, Paint Pros had a balance in Accounts Receivable of $15,000. Net credit sales for the year were $450,000. The Allowance for Doubtful Accounts has a credit balance of $900. Journalize the recording of the bad debt expense under the income statement approach if 2% of net credit sales is deemed uncollectible.

Question 52

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

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

Question 53

On December 31, 2010, Paint Pros had a balance in Accounts Receivable of $15,000. Net credit sales for the year were $450,000. The Allowance for Doubtful Accounts has a debit balance of $800. Journalize the recording of the bad debt expense under the income statement approach if 0.8% of net credit sales is deemed uncollectible.

Question 54

Indy Sport and Hobby's Allowance for Doubtful Accounts had an unadjusted credit balance of $400. The manager estimates that $900 of the Accounts Receivable is uncollectible. Using the balance sheet approach, the year-end adjusting entry for Bad Debts Expense:

A)includes a credit to the Bad Debt Expense account for $500.
B)includes a debit to the Bad Debts Expense account for $900.
C)includes a credit to the Bad Debts Expense account for $1,300.
D)includes a debit to the Bad Debts Expense account for $500.

Question 55

The balance sheet approach estimates a percentage of Accounts Receivable that is uncollectible.

Question 56

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 are correct.

Question 57

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 58

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 assets decreases.

Question 59

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

Question 60

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

Question 61

Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 8% of sales
$ ________

Question 62

On December 31, 2010, Paint Pros had a balance in Accounts Receivable of $15,000. Net credit sales for the year were $450,000. The Allowance for Doubtful Accounts has a debit balance of $800. Journalize the recording of the bad debt expense under the balance sheet approach if $1,510 is the estimated amount of uncollectible accounts.

Question 63

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

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

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

Question 66

The Allowance for Doubtful Accounts has a credit balance of $4,000. Net sales for the year were $800,000. Two percent is the estimated uncollectible based on net sales. Calculate the amount of the adjustment using the income statement approach.
Amount of the adjustment ________

Question 67

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 68

Empire has a credit balance of $750 in its Allowance for Doubtful Accounts. The balance it the Accounts Receivable account is $80,500, with $2,415 estimated to be uncollectible after aging the accounts. Under the balance sheet approach, the debit to Bad Debt Expense will be:

A)$2,415.
B)$3,165.
C)$1,665.
D)$750.

Question 69

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 70

Prepare the adjusting journal entry for Bad Debts Expense from the following information using the balance sheet approach.

Question 71

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

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

Question 72

Determine the amount of the adjustment for bad debts given:
Bad debts are estimated to be 4% of sales
$ ________

Question 73

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

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

Question 75

Prepare the adjusting journal entry of Bad Debts Expense from the following information using the income statement approach.

Question 76

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

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

Question 77

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

Question 78

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

A)
B)
C)
D)None of the above

Question 79

After aging the receivables, Tim's Toys estimates that $900 will not be collected and the allowance account has a debit balance of $325. The adjusting entry would be for:

A)$575.
B)$900.
C)$1,225.
D)$325.

Question 80

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.