Deck 9: Receivables

Question 1

Which of the following is included in the category of other receivables?

A) interest receivable
B) accounts receivable
C) notes receivable
D) investments

Answer 1

A

Question 2

The three major types of receivables are accounts receivable,notes receivable,and other receivables.

Answer 2

True

Question 3

Which of the following statements is TRUE?

A) Accounts receivable are more liquid than cash.
B) Notes receivable are always classified as current assets.
C) Notes receivable usually have longer collection terms than accounts receivable.
D) Accounts receivable are liabilities.

Answer 3

C

Question 4

The two major types of receivables are interest receivable and taxes receivable.

Question 5

A receivable occurs when a business sells goods or services to another party on account.

Question 6

Which of the following statements regarding receivables is correct?

A) Each receivable transaction involves three parties.
B) Receivables occur when a business loans money to another party.
C) A receivable occurs when a business makes a cash sale of goods or services to another party.
D) A receivable is the right to pay cash in the future from a current receivable transaction.

Question 7

A receivable is a liability because it represents a right to receive cash in the future.

Question 8

A receivable is a monetary claim against a business or an individual.

Question 9

A receivable occurs when a business ________.

A) loans money to another party
B) sells goods or services to another party on account
C) has a monetary claim against a business or individual
D) All of the statements are correct.

Question 10

A debtor is a party to a credit transaction who will receive the cash for the transaction at a later date.

Question 11

Which of the following statements,regarding notes receivable,is incorrect?

A) Notes receivable usually have longer terms than accounts receivable.
B) A notes receivable is a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
C) All notes receivable are considered long-term assets.
D) Notes receivable are sometimes called promissory notes.

Question 12

Notes receivable due within 12 months or within the normal operating cycle if the cycle is longer than a year are considered long-term assets.

Question 13

Accounts receivable are usually collected within a short period of time and are therefore reported as a current liability on the balance sheet.

Question 14

Dividends receivable,interest receivable,and taxes receivable are generally categorized as other receivables.

Question 15

Each receivable transaction involves two parties - the one who takes on the obligation and the one who will collect the cash.

Question 16

The collection period of accounts receivable is usually long,and therefore,it is classified as a long-term asset on the balance sheet.

Question 17

Accounts receivable are also called trade receivables.

Question 18

Notes receivable ________.

A) represent an oral promise to pay a fixed amount of principal plus interest on the maturity date
B) are included in a miscellaneous category called other receivables
C) due within 12 months or within the normal operating cycle if the cycle is longer than a year are considered long-term assets
D) are supported by a promissory note

Question 19

Notes receivable represent a written promise that a party will pay a fixed amount of principal plus interest on a stated maturity date.

Question 20

The payment terms for a note receivable are generally longer than that of an account receivable.

Question 21

Alltech Company maintains a separate accounts receivable account for each customer.On June 18,Alltech provides $6100 of services on account to customer Anthony and $1000 of services on account to customer Walker.How will these two transactions affect the control and subsidiary accounts?

A) The control account, Accounts Receivable, will be increased with a debit of $7100.
B) The individual customer accounts in the subsidiary ledger will be increased with credits.
C) After posting these transactions, the sum of the balances in subsidiary accounts receivable will not equal the control account balance.
D) The control account will have a debit balance and the subsidiary accounts will have a credit balance. This keeps the accounting equation in balance.

Question 22

Separation of cash-handling and cash-accounting duties is a critical element of internal control over receivables.

Question 23

Because customers make payments on account throughout the period,the sum of all balances in subsidiary accounts receivable will not equal the control account balance.

Question 24

Sales through credit or debit cards transfer the risk of collection of receivables from the seller to the card issuer.

Question 25

The employees who handle cash know how customers pay and thus are in the best position to grant credit to customers.

Question 26

The role of the credit department includes ________.

A) approving all credit applications in order to avoid losing sales
B) evaluating customers' credit applications to determine whether they meet the company's approval standards
C) following unwritten approval standards for processing customers' credit applications
D) collecting cash from customers

Question 27

A business maintains subsidiary accounts for each of its customers.On April 7,the business provides $2,500 in services to Anne Hill on account.The business sells $4,000 (sales price)of merchandise inventory to Ron Wilson on account.
The full amount was collected from each customer on April 26.
Prepare the journal entries for April 7 and April 26.Ignore Cost of Goods Sold and omit explanations.
$$\begin{array} { | l | l | l | l | } \hline \text { Date } &\quad\quad\quad\quad\quad\quad\quad\quad & \text { Debit } & \text { Credit } \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline\end{array}$$

Question 28

When businesses accept payment by credit and debit cards,there is almost always a fee to the purchaser to cover the processing costs charged by the card issuer.

Question 29

A business maintains a separate Accounts Receivable account for each customer in order to account for payments received from the customer and amounts still owed by the customer.

Question 30

When businesses accept payment by credit and debit cards,the costs of processing fees are greater than the benefits of transferring the risk of not being able to collect from the customer and avoiding the costs associated with credit customers.

Question 31

Specialty Foods Company maintains a separate accounts receivable account for each customer.Regarding this accounting treatment,which of the following statements is incorrect?

A) The separate customer accounts receivable are called subsidiary accounts.
B) When a customer makes a payment on account, a debit is posted to the accounts receivable subsidiary account as well as to the accounts receivable control account.
C) The sum of all balances in the subsidiary accounts receivable equals a control account balance.
D) The purpose of this accounting treatment is to account for payments received from the customer and the amounts still owed.

Question 32

A business maintains subsidiary accounts for each of its customers.On May 15,the business provides services on account: $2400 to customer J.Anthony ; $4300 to customer A.Martin; and $1800 to customer S.Lee.Which journal entry is needed to record these transactions?

A) $$\begin{array} { | l | l | r | r | } \hline \text { May 15 } & \text { Accounts Receivable } & 8500 & \\\hline & \text { Service Revenue } & & 8500 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | r | r | } \hline \text { May 15 } & \text { Accounts Receivable - J. Anthony } & 2400 & \\\hline & \text { Accounts Receivable - A. Martin } & 4300 & \\\hline & \text { Accounts Receivable - S. Lee } & 1800 & \\\hline & \text { Service Revenue } & & 8500 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | r | r | } \hline \text { May } 15 & \text { Service Revenue } & 8500 & \\\hline & \text { Accounts Receivable } & & 8500 \\\hline\end{array}$$
D) $$\begin{array} { | r | l | r | r | } \hline \text { May 15 } & \text { Accounts Receivable Control } & 8500 & \\\hline & \text { Sales Revenue } & & 8500 \\\hline & & & \\\hline \text { May 15 } & \text { Accounts Receivable - J. Anthony } & 2400 & \\\hline & \text { Accounts Receivable - A. Martin } & 4300 & \\\hline & \text { Accounts Receivable -S. Lee } & 1800 & \\\hline & \text { Accounts Receivable - Control } & & 8500 \\\hline\end{array}$$

Question 33

By accepting credit and debit cards,companies are able to attract more customers.

Question 34

Separate customer accounts receivable are called subsidiary accounts.

Question 35

Which of the following should be classified as a long-term asset?

A) Interest Receivable
B) Accounts Receivable
C) Notes Receivable, due in 5 years
D) Cash Equivalents

Question 36

Which of the following is an example of exercising internal control over receivables?

A) separating cash collection and credit approval duties
B) extending credit to all customers who apply for credit
C) combining the duties of the credit and accounting departments
D) allowing credit department employees to collect cash from customers

Question 37

Businesses must maintain a single Accounts Receivable control account regardless of the number of customers.

Question 38

Credit cards reduce the customer's bank account immediately but allow the customer to pay electronically instead of with currency or writing a check.

Question 39

Which of the following is a weak internal control over cash collections from receivables?

A) The credit department should have no access to cash.
B) A credit department should evaluate customers' credit applications to determine whether they meet the company's approval standards.
C) A company should have written approval standards for processing customers' credit applications.
D) In order to avoid losing sales, all customers' credit applications should be approved.

Question 40

Credit department employees must have access to cash in order to exercise effective internal control over receivables.

Question 41

When a business pledges its accounts receivable,it transfers the right to collect cash from customers to the bank.

Question 42

Uptown Company has determined that an account receivable of $125 is uncollectible.The company uses the direct write-off method.Which of the following entries is required to record the write-off?

A) $$\begin{array} { | c | r | r | } \hline \text { Bad Debts Expense } & 125 & \\\hline \text { Accounts Receivable } & & 125 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 125 & \\\hline \text { Accounts Receivable } & & 125 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Allowance for Bad Debts } & 125 & \\\hline \text { Accounts Receivable } & & 125 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 125 & \\\hline \text { Bad Debts Expense } & & 125 \\\hline\end{array}$$

Question 43

Bad debt expense is a cost to the seller of extending credit.

Question 44

Factoring is an option available to a business to reduce the risk of uncollectible accounts receivable.

Question 45

When a business factors its accounts receivables,the business ________.

A) uses the receivables as security for a loan
B) no longer has to deal with the collection of the receivables from the customers
C) receives the total amount of the receivables from the factor
D) receives cash, less an applicable fee, after the factor collects from the customers

Question 46

A business that accepts payments by credit and debit cards ________.

A) is usually unable to attract more customers
B) must check each customer's credit rating
C) generally receives proceeds from credit and debit card transactions 30 - 45 days after the sale
D) almost always pays a fee to the processor to cover the processing costs

Question 47

When a business factors its receivables,it uses the receivables as security for a loan.

Question 48

Which of the following is a disadvantage when a business accepts credit cards or debit cards from customers?

A) The business bears the responsibility of collecting cash from the customer.
B) The business bears the risk of nonpayment by the customer.
C) The business pays a processing fee.
D) The business checks customers' credit ratings.

Question 49

The expense associated with the cost of uncollectible accounts receivable is called bad debts expense.

Question 50

Provide a brief definition of each of the following terms.
$$\begin{array} { | l | l | } \hline \text { Term } & \text { Brief Definition } \\\hline \text { Factoring Receivables } & \\\hline \text { Receivable } & \\\hline \text { Maturity Date } & \\\hline\end{array}$$

Question 51

When a company is using the direct write-off method,and an account is written off,the journal entry consists of a ________.

A) debit to Accounts Receivable and a credit to Cash
B) credit to Accounts Receivable and a debit to Bad Debts Expense
C) debit to the Allowance for Bad Debts and a credit to Accounts Receivable
D) credit to Accounts Receivable and a debit to Interest Expense

Question 52

The following information is from the records of Mountainview Camera Shop: $$\begin{array} { | l | l | } \hline \text { Accounts receivable, December 31, 2018 } & \$ 81,000 \text { (debit) } \\\hline \text { Net credit sales for 2018 } & 161,000 \\\hline \text { Accounts written off as uncollectible during 2018 } & 15,000 \\\hline \text { Cash sales during 2018 } & 45,000 \\\hline\end{array}$$ The company uses the direct write-off method for bad debts.What is the amount of bad debts expense?

A) $81,000
B) $45,000
C) $65,000
D) $15,000

Question 53

Under the direct write-off method,the entry to write off an uncollectible account will include ________.

A) a debit to Bad Debts Expense account
B) a debit to the customer's Account Receivable
C) a credit to the Allowance for Bad Debts
D) No entry is made to write off uncollectible accounts.

Question 54

Factoring occurs when a business sells its receivables to a finance company or bank.

Question 55

Provide a brief definition of each of the following terms.
$$\begin{array} { | l | l | } \hline \text { Term } & \text { Brief Definition } \\\hline \text { Debtor } & \\\hline \text { Pledging Receivables } & \\\hline \text { Accounts Receivable } & \\\hline\end{array}$$

Question 56

Accounts receivable that are uncollectible must remain on the books because the customer may eventually pay.

Question 57

The direct write-off method of accounting for uncollectible receivables is primarily used by small,nonpublic companies.

Question 58

Under the direct write-off method,which of the following is included in the entry to write off an uncollectible account?

A) a credit to the Allowance for Bad Debts
B) a credit to the customer's Account Receivable
C) a debit to Allowance for Uncollectible Accounts
D) No entry is made to write off uncollectible accounts.

Question 59

When a business factors its receivables,the factor collects cash on the receivables.

Question 60

The two methods of accounting for uncollectible accounts receivable are ________.

A) the direct write-off method and the liability method
B) the asset method and the sales method
C) the allowance method and the liability method
D) the allowance method and the direct write-off method

Question 61

The Allowance for Bad Debts is a contra account to Accounts Receivable.

Question 62

In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by debiting the receivable account.

Question 63

Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.

Question 64

The use of the allowance method to record bad debts expense violates the matching principle.

Question 65

Under both the allowance method and the direct-write off method of accounting for uncollectible accounts,the amount of bad debts expense is estimated at the end of each accounting period.

Question 66

Which of the following statements is TRUE of the direct write-off method?

A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.

Question 67

A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see from which customers the company will not be able to collect is known as the allowance method.

Question 68

Customer G.Smith owed Stonehollow Electronics $125.On April 27,2018,Stonehollow determined this account receivable to be uncollectible and wrote off the account.The company uses the direct write-off method.On July 15,2018,Stonehollow received a check for $125 from the customer.How should the July 15,2018 transaction be recorded?

A) $$\begin{array} { | l | l | l | l | } \hline \text { July 15 } & \text { Cash } & 125 & \\\hline & \text { Accounts Receivable - G. Smith } & & 125 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | l | } \hline \text { July 15 } & \text { Accounts Receivable - G. Smith } & 125 & \\\hline & \text { Bad Debt Revenue } & & 125 \\\hline \text { July 15 } & \text { Cash } & 125 & \\\hline & \text { Accounts Receivable - G. Smith } & & 125 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | l | } \hline \text { July 15 } & \text { Cash } & 125 & \\\hline & \text { Bad Debt Expense } & & 125 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | l | } \hline \text { July 15 } & \text { Accounts Receivable - G. Smith } & 125 & \\\hline & \text { Bad Debt Expense } & & 125 \\\hline \text { July 15 } & \text { Cash } & 125 & \\\hline & \text { Accounts Receivable - G. Smith } & & 125 \\\hline\end{array}$$

Question 69

Prepare the journal entry to record an uncollectible account receivable of $10,000,using the direct write-off method.Omit explanation.

Question 70

For a company with significant uncollectible receivables,the direct write-off method is unsuitable because ________.

A) it overstates liabilities on the balance sheet
B) it violates the matching principle
C) it uses estimates for determining the bad debt expense
D) companies are not able to track customer payment histories

Question 71

The direct write-off method for uncollectible accounts violates the matching principle.

Question 72

On January 1,Five Star Services has the following balances: Accounts Receivable $26,000 (debit)
Bad Debts Expense $0
Five Star Services has the following transactions during January: Credit sales of $100,000,collections of credit sales of $87,000,and write-offs of $18,000.Five Star Services uses the direct write-off method.At the end of January,the balance of Accounts Receivable is ________.

A) $15,660
B) $21,000
C) $20,690
D) $39,000

Question 73

Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect?

A) Bad debt expense is not estimated.
B) The Allowance for Bad Debts is used to hold the pool of "unknown" uncollectible accounts.
C) The business does not wait to see which customers will not pay when estimating the allowance for bad debts.
D) The allowance method is based on the matching principle.

Question 74

The allowance method of accounting for uncollectible receivables ________.

A) is used to measure bad debts
B) violates the matching principle
C) records bad debt expense in the period the accounts receivable is written off
D) requires the use of a contra liability account

Question 75

In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by crediting the receivable account.

Question 76

Moonlight Company wrote off the account of one of its customers,X,in 2018 for $500.On January 21,2019,X unexpectedly repaid his account in full.The company uses the direct write-off method to account for uncollectible receivables.Journalize the entries required for Moonlight Company on January 21,2019.Omit explanations.

Question 77

The direct write-off method is only acceptable for companies that have very few uncollectible receivables.

Question 78

A company with significant amounts of accounts receivable experiences uncollectible accounts from time to time.If the company uses the direct write-off method,the effect of writing off an uncollectible receivable will be ________.

A) a reduction in net income
B) negligible on net income
C) an increase in total assets
D) a generation of positive cash flow

Question 79

On January 1,All City Services has the following balances: Accounts Receivable $22,000
Bad Debts Expense $0
All City has the following transactions during January: Credit sales of $120,000,collections of credit sales of $84,000,and write-offs of $18,000.All City uses the direct write-off method.The amount of Bad Debts Expense for January is ________.

A) $22,000
B) $25,714
C) $12,600
D) $18,000

Question 80

Once an accounts receivable is written off ________.

A) the account must be turned over to a collection agency
B) the company continues to pursue the collection
C) the company still expects to be paid
D) the customer's accounts receivable is removed from the books