Deck 8: Receivables

Question 1

The existence of uncollectible accounts is evidence of poor credit policies.

Answer 1

False

Question 2

When an account receivable that was previously written off is collected,it is necessary to reverse the entry for the write-off before recording the collection.

Answer 2

True

Question 3

The direct charge-off method makes no attempt to match bad-debt losses with revenues.

Answer 3

True

Question 4

Because bad debt losses are incurred to generate sales,they should be charged against the sales that they helped generate.

Question 5

Uncollectible accounts should not be estimated because it is impossible to know which accounts will not be collected.

Question 6

Under the allowance method,Uncollectible Accounts Expense is not recorded when an individual customer defaults.

Question 7

Notes receivable due within 90 days and cash are examples of short-term financial assets.

Question 8

Both the allowance method and the direct charge-off method are acceptable for tax purposes.

Question 9

Bad debts are considered as an expense of selling on credit.

Question 10

The allowance method of handling bad debts violates the matching principle.

Question 11

Under the allowance method,uncollectible accounts must be estimated if the matching rule is to be followed.

Question 12

When the allowance method is used,the write-off of an account receivable results in an expense at the time of write-off.

Question 13

When using the direct charge-off method,year-end adjustments for uncollectible accounts expense are not made.

Question 14

Loans to company employees should be included with accounts receivable on the balance sheet.

Question 15

Under the accounts receivable aging method,the balance in Allowance for Uncollectible Accounts must be considered prior to adjusting for estimated uncollectible accounts.

Question 16

Following a lenient credit-granting policy will probably result in fewer defaults by customers.

Question 17

The direct charge-off method of recognizing uncollectible accounts is not in accordance with generally accepted accounting principles.

Question 18

The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total of all accounts written off over the years.

Question 19

A promissory note may be issued for an amount to be determined at a future date.

Question 20

The debtor named in a promissory note is called the payee.

Question 21

Securitization delays the receipt of cash from sales made on credit.

Question 22

The percentage of net sales method of estimating uncollectible accounts is in violation of the matching principle.

Question 23

A discounted note represents a contingent liability to the original holder.

Question 24

Days' sales uncollected cannot be calculated without first knowing the receivables turnover.

Question 25

The Allowance for Uncollectible Accounts is a contra-asset account.

Question 26

The higher the receivables turnover,the lower the days' sales uncollected.

Question 27

A 60-day note dated December 10 is due on February 10.

Question 28

Under securitization,a company sells individual receivables with recourse at a large discount.

Question 29

A company's acceptance of credit cards,like MasterCard,is an example of factoring with recourse.

Question 30

Purchasing receivables with recourse is riskier than purchasing them without recourse.

Question 31

It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net income.

Question 32

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

Question 33

The principal of a non-interest-bearing note includes an implied interest cost.

Question 34

When Company A discounts without recourse a note to Company B,Company A has a contingent liability until the note is paid.

Question 35

A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor.

Question 36

The holder,or payee,of a dishonored note should transfer the total amount due,including interest income,from Notes Receivable to an individual account receivable for the debtor.

Question 37

Interest on a six-month,7 percent,$2,000 note is calculated by multiplying $2,000 ´ 7/100 ´ 6/12.

Question 38

The fee for factoring without recourse is normally higher than it would be with recourse.

Question 39

The receivables turnover is expressed as a percentage.

Question 40

The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Income.

Question 41

Assume that on December 1,a $6,000,90-day,10 percent note receivable was received from a customer as an extension of his past-due account.The entry that would be made to record the note is:

A)Notes Receivable 6,000 Cash 6,000
B)Notes Receivable 6,000 Interest Income 6,000
C)Notes Receivable 6,000 Accounts Receivable 6,000
D)Cash 6,000 Accounts Receivable 6,000

Question 42

Which of the following statements is false regarding promissory notes?

A)They are sometimes used to extend past-due accounts.
B)They can be resold to banks.
C)They must be held by the maker until maturity.
D)They are often received upon the sale of machinery and automobiles.

Question 43

Using the accounts receivable aging method,estimated uncollectible accounts are $40,000.If the balance of the Allowance for Uncollectible Accounts is an $8,000 debit before adjustment,what is the balance after adjustment?

A)$8,000
B)$32,000
C)$40,000
D)$48,000

Question 44

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $494,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the percentage of net sales method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

A)$8,880.
B)$9,880.
C)$10,880.
D)$1,000.

Question 45

Each of the following is a characteristic of a promissory note except a(n)

A)maturity date that can be determined on the date the note is signed.
B)payee who has an unconditional right to receive a definite amount on a definite date.
C)maker who agrees to pay a definite sum subject to certain conditions.
D)amount to be paid that can be determined on the date the note is signed.

Question 46

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $11,700 of uncollectible accounts.
Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance would be credited for

A)$10,700.
B)$11,700.
C)$12,200.
D)$12,700.

Question 47

Using the percentage of net sales method,uncollectible accounts expense for the year is estimated to be $44,000.If the balance of the Allowance for Uncollectible Accounts is a $9,000 credit before adjustment,what is the balance after adjustment?

A)$9,000
B)$35,000
C)$44,000
D)$53,000

Question 48

The matching rule

A)results in the recording of a known amount for bad-debt losses.
B)necessitates the recording of an estimated amount for bad debts.
C)requires that all bad-debt losses be recorded when an individual customer defaults.
D)is violated when the allowance method is employed.

Question 49

The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be recorded

A)in the period of the loss.
B)for an exact amount.
C)in the same period as allowed for tax purposes.
D)in the period of the sale.

Question 50

The allowance for uncollectible accounts is necessary because

A)a liability results when a credit sale is made.
B)when recording uncollectible accounts expense,it is not possible to predict specifically which accounts will not be collected.
C)management should know how many credit losses have been sustained over the years.
D)uncollected accounts that are written off must be accumulated in a separate account.

Question 51

Under the allowance method,when a specific account is written off,

A)total assets will be unchanged.
B)total assets will decrease.
C)net income will decrease.
D)total assets will increase.

Question 52

The balance of Accounts Receivable,net of the allowance account,is $25,000 before the write-off of a $2,000 account.What is the Accounts Receivable balance,net of the allowance account,after the write-off?

A)$2,000
B)$23,000
C)$25,000
D)$27,000

Question 53

Which of the following accounts is classified as a short-term financial asset?

A)Office Supplies
B)Accounts Receivable
C)Equipment
D)Prepaid Insurance

Question 54

A company that uses the allowance method writes off a specific account as uncollectible,but then the customer pays.The entries made upon receiving payment will

A)decrease Cash.
B)decrease Allowance for Uncollectible Accounts.
C)increase Allowance for Uncollectible Accounts.
D)decrease Uncollectible Accounts Expense.

Question 55

One might infer from a debit balance in Allowance for Uncollectible Accounts that

A)a posting error has been made.
B)Uncollectible Accounts Expense has been overestimated.
C)the accounts receivable aging method apparently is being used.
D)more has been written off than had been estimated.

Question 56

The balance in Allowance for Uncollectible Accounts must be considered prior to end-of-period adjustment when using which of the following methods?

A)Direct charge-off method
B)Both direct charge-off method and percentage of net sales method
C)Percentage of net sales method
D)Accounts receivable aging method

Question 57

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the percentage of net sales method,Uncollectible Accounts Expense would be debited for

A)$9,000.
B)$11,000.
C)$1,000.
D)$10,000.

Question 58

Under the direct charge-off method of dealing with uncollectible accounts,

A)revenues and expenses are properly matched.
B)Accounts Receivable is shown on the balance sheet at net realizable value.
C)Uncollectible Accounts Expense is recorded in the period of the sale.
D)no Allowance for Uncollectible Accounts exists.

Question 59

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a debit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

A)$14,500.
B)$14,000.
C)$13,500.
D)$12,500.

Question 60

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

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

Question 61

The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $3,000.Net sales for the year were $500,000.In the past,3 percent of sales have proved uncollectible,and an aging of accounts receivable resulted in an estimate of $20,000 of uncollectible accounts receivable. Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

A)$17,000.
B)$20,000.
C)$21,500.
D)$23,000.

Question 62

Under the allowance method,Uncollectible Accounts Expense is recorded

A)for an estimated amount.
B)several times during the accounting period.
C)when an individual account is written off.
D)for a known amount.

Question 63

Interest on a note receivable may be calculated without knowledge of the

A)principal amount.
B)rate of interest.
C)note's maturity date.
D)note's duration.

Question 64

A promissory note is executed in June.When the note is paid the following January,the payee's entry includes (assuming a calendar-year accounting period and no reversing entries)a

A)debit to Interest Income.
B)credit to Cash.
C)credit to Interest Receivable.
D)debit to Notes Receivable.

Question 65

Assume that on February 25,a customer who owes Berry Sales Company $2,000 is declared bankrupt by a federal court.The entry that would be made to write off this account is:

A)Allowance for Uncollectible Accounts 2,000 Accounts Receivable/Customer Account 2,000
B)Accounts Receivable/Customer Account 2,000 Allowance for Uncollectible Accounts 2,000
C)Accounts Receivable 2,000 Notes Receivable 2,000
D)Cash 2,000 Accounts Receivable 2,000

Question 66

The account Allowance for Uncollectible Accounts is classified as a(n)

A)contra account to Uncollectible Accounts Expense.
B)expense.
C)liability.
D)contra account to Accounts Receivable.

Question 67

Assume that on October 1,a note which has a face value of $2,000,bears interest at 6 percent for 90 days,received from a customer as an extension of his past-due account is honored on its due date.The entry that would be made to record the receipt on due date is:

A)Notes Receivable 2,000 Cash 2,000
B)Accounts Receivable 2,000 Interest Revenue 30
Cash 2,030
C)Accounts Receivable 2,030 Notes Receivable 2,030
D)Cash 2,030 Interest Revenue 30
Notes Receivable 2,000

Question 68

Interest on a 180-day,10 percent,$10,000 note receivable is

A)$5,001.54.
B)$576.76.
C)$493.15.
D)$2001.26.

Question 69

A company performs the aging of accounts receivable calculation and arrives at an estimate for uncollectible accounts of $900.If Allowance for Uncollectible Accounts has a debit balance of $200 prior to the year-end adjustment,for how much should the adjustment be journalized?

A)$200
B)$700
C)$900
D)$1,100

Question 70

The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $3,000.Net sales for the year were $500,000.In the past,3 percent of sales have proved uncollectible,and an aging of accounts receivable resulted in an estimate of $20,000 of uncollectible accounts receivable. Using the percentage of net sales method,the entry to record the Uncollectible Accounts Expense would be:

A)Uncollectible Accounts Expense 12,000 Allowance for Uncollectible Accounts 12,000
B)Uncollectible Accounts Expense 15,000 Allowance for Uncollectible Accounts 15,000
C)Allowance for Uncollectible Accounts 18,000 Uncollectible Accounts Expense 18,000
D)Allowance for Uncollectible Accounts 20,000 Uncollectible Accounts Expense 20,000

Question 71

A note receivable dated May 23 and due in 90 days would be due on

A)August 20.
B)August 21.
C)August 23.
D)August 22.

Question 72

The interest on a three-month,12 percent,$16,200 note receivable is

A)$486.
B)$162.
C)$324.
D)$1,944.

Question 73

If the amount of uncollectible accounts expense is understated at year end,

A)net Accounts Receivable will be understated.
B)total liabilities will be overstated.
C)net income will be understated.
D)Allowance for Uncollectible Accounts will be understated.

Question 74

The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $3,000.Net sales for the year were $500,000.In the past,3 percent of sales have proved uncollectible,and an aging of accounts receivable resulted in an estimate of $20,000 of uncollectible accounts receivable. Using the percentage of net sales method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

A)$12,000.
B)$15,000.
C)$18,000.
D)$20,000.

Question 75

The maturity value of a 60-day,9 percent,$4,000 note receivable is

A)$3,940.66.
B)$3,641.78.
C)$4,059.18
D)$4,360.24.

Question 76

Caudill Sales Company made most of its sales on credit during its first year of operation,2014.At the end of the year,accounts receivable amounted to $100,000.On December 31,2014,management reviewed the collectible status of the accounts receivable.Approximately $6,000 of the $100,000 of accounts receivable were estimated to be uncollectible.As per the accounts receivable aging method the adjusting entry that would be made on December 31 of that year is:

A)Uncollectible Accounts Expense 6,000 Accounts Receivable 6,000
B)Allowance for Uncollectible Accounts 10,000 Uncollectible Accounts Expense 10,000
C)Uncollectible Accounts Expense 6,000 Allowance for Uncollectible Accounts 6,000
D)Allowance for Uncollectible Accounts 10,000 Accounts Receivable 10,000

Question 77

When a note is dishonored,the payee's journal entry includes a

A)debit to Accounts Receivable.
B)debit to Interest Expense.
C)debit to Notes Receivable.
D)debit to Interest Income.

Question 78

You have just received notice that Agnes Fisher,a customer of yours with an Accounts Receivable balance of $200,has gone bankrupt and will not be making any future payments.Assuming you use the allowance method,the journal entry you make is to

A)debit Uncollectible Accounts Expense and credit Accounts Receivable.
B)debit Allowance for Uncollectible Accounts and credit Uncollectible Accounts Expense.
C)debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts.
D)debit Allowance for Uncollectible Accounts and credit Accounts Receivable.

Question 79

A company has net sales of $50,000 during the year.At year end (before an adjustment is made),Allowance for Uncollectible Accounts has a credit balance of $2,500.If the company estimates that 3 percent of net sales are uncollectible,what is the balance in the allowance account after the year-end adjustment has been made using the percentage of net sales method?

A)$1,500 debit balance
B)$1,500 credit balance
C)$4,000 credit balance
D)$1,000 debit balance

Question 80

The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $3,000.Net sales for the year were $500,000.In the past,3 percent of sales have proved uncollectible,and an aging of accounts receivable resulted in an estimate of $20,000 of uncollectible accounts receivable. Using the accounts receivable aging method,the entry to record Uncollectible Accounts Expense would be:

A)Uncollectible Accounts Expense 21,500 Allowance for Uncollectible Accounts 21,500
B)Uncollectible Accounts Expense 17,000 Allowance for Uncollectible Accounts 17,000
C)Allowance for Uncollectible Accounts 20,000 Uncollectible Accounts Expense 20,000
D)Allowance for Uncollectible Accounts 23,000 Uncollectible Accounts Expense 23,000