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

Generally accepted accounting principles do normally allow the use of the direct write-off method of accounting for uncollectible accounts.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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 6

Receivables currently collectible are reported in the investments section of the balance sheet.

Question 7

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

Question 8

Allowance for Doubtful Accounts is a liability account.

Question 9

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

Question 10

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

Question 11

The direct write-off method records Bad Debt Expense in the year the specific account receivable is determined to be uncollectible.

Question 12

Notes Receivable and Accounts Receivable can also be called trade receivables.

Question 13

When an account receivable that has been written off is subsequently collected, the account receivable is said to be reinstated.

Question 14

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

Question 15

Other receivables include non trade receivables such as loans to company officers.

Question 16

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

Question 17

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

Question 18

When using the estimate based on sales method, the entry to record uncollectible accounts expense includes a credit to the Accounts Receivable account.

Question 19

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

Question 20

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 21

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

Question 22

The equation for computing interest on an interest-bearing note is as follows: interest equals maturity value times interest rate times time.

Question 23

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

Question 24

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 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

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

Question 33

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 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

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

Question 42

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 43

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 44

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 pre-determined amount of credit sales have been made.
D) when an account is determined to be worthless.

Question 45

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 46

On the balance sheet, 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 receivables 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 47

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 uncollecttible. 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 Returns and Allowance, credit Accounts Receivable
C) debit Bad Debt Expense; credit Allowance for Doubtful Accounts
D) debit Bad Debt Expense; credit Accounts Receivable

Question 48

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 49

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

A) non-trade receivables.
B) trade receivables.
C) merchandise receivables.
D) sales receivables.

Question 50

The direct write-off method of accounting for uncollectible accounts

A) emphasizes balance sheet relationships.
B) is not generally accepted as a basis for estimating bad debts.
C) emphasizes cash realizable value.
D) emphasizes the matching of expenses with revenues.

Question 51

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 52

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 53

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 Debts Expense

Question 54

The two methods of accounting for uncollectible receivables are the allowance method and the

A) equity method
B) direct write-off method
C) interest method
D) cost method

Question 55

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 56

When does an account become uncollectible?

A) when the debtor fails to pay an account according to a sales contract
B) when the debtor fails to pay a note on the due date
C) there is no general rule for when an account becomes uncollectible
D) at the end of the fiscal year

Question 57

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $460,000 and Allowance for Doubtful Accounts has a balance of $30,000. What is the net realizable value of the accounts receivable?

A) $30,000
B) $430,000
C) $460,000
D) $490,000

Question 58

One of the weaknesses of the direct write-off method is that it

A) understates accounts receivable on the balance sheet
B) violates the matching principle
C) is too difficult to use for many companies
D) is based on estimates

Question 59

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

Question 60

An alternative name for Bad Debts Expense is

A) Collection Expense.
B) Credit Loss Expense.
C) Uncollectible Accounts Expense.
D) Deadbeat Expense.

Question 61

An aging of a company's accounts receivable indicates the estimate of uncollectible receivables totals $2,000. If Allowance for Doubtful Accounts has a $200 credit balance, the adjustment to record the bad debt expense for the period will require a

A) debit to Bad Debt Expense for $2,200.
B) debit to Bad Debt Expense for $2,000.
C) debit to Bad Debt Expense for $1,800.
D) credit to Allowance for Doubtful Accounts for $3,000.

Question 62

An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $4,000. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record the bad debt expense for the period will require a

A) debit to Bad Debt Expense for $5,200.
B) debit to Bad Debt Expense for $4,000.
C) debit to Bad Debt expense for $2,800
D) credit to Allowance for Doubtful Accounts for $5,000.

Question 63

An aging of a company's accounts receivable indicates that estimate of the uncollectible accounts totals $5,000. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record the bad debt expense for the period will require a

A) debit to Allowance for Doubtful Accounts for $3,800.
B) debit to Bad Debt Expense for $3,800.
C) debit to Allowance for Doubtful Accounts for $5,000.
D) credit to Allowance for Doubtful Accounts for $5,000.

Question 64

The balance in Allowance for Doubtful Accounts will directly impact the end of period adjustment for the bad debt expense when using which of the following methods?

A) Allowance method
B) Direct write-off method
C) Accrual method
D) Net realizable method

Question 65

Allowance for Doubtful Accounts has a debit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customers ledger indicates uncollectible receivables of $15,000. Which of the following entries records the proper adjusting entry for bad debt expense?

A) debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B) debit Bad Debt Expense, $14,200; credit Allowance for Doubtful Accounts, $14,200
C) debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D) debit Bad Debt Expense, $15,800; credit Allowance for Doubtful Accounts, $15,800

Question 66

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

A) debit to Bad Debs 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 67

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 68

Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a

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

Question 69

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 70

Dalton Company uses the allowance method to account for uncollectible receivables. Dalton has determined that the Irish Company account is uncollectible. To write-off this account, Dalton should debit

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

Question 71

Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of net credit sales will be uncollectible. On January 1, 2010, the Allowance for Doubtful Accounts had a credit balance of $2,400. During 2010, Abbott wrote-off accounts receivable totaling $1,800 and made credit sales of $100,000. There were no Sales Returns or Sales Discounts during the year. After the adjusting entry, the December 31, 2010, balance in the Bad Debt Expense would be

A) $1,200
B) $3,000
C) $3,600
D) $7,200

Question 72

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 73

In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the amount of the adjustment when applying which method?

A) direct write-off method
B) percentage of sales method
C) Analysis of receivables method
D) both (b) and (c)

Question 74

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $300,000 and credit sales are $1,000,000. 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 $2,000 before adjustment?

A) Bad Debt Expense 13,000 Allowance for Doubtful Accounts 13,000
B) Bad Debt Expense 15,000 Allowance for Doubtful Accounts 15,000
C) Bad Debt Expense 17,000 Allowance for Doubtful Accounts 17,000
D) Bad Debt Expense 20,000 Allowance for Doubtful Accounts 20,000

Question 75

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 76

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 77

A company uses the allowance method to account for uncollectible accounts receivables. When the firm writes off a specific customer's account receivable

A) total current assets are reduced
B) total expenses for the period are increased
C) total current assets are reduced and total expenses are increased
D) there is no effect on total current assets or total expenses

Question 78

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 79

Allowance for Doubtful Accounts has a credit balance of $1,500 at the end of the year (before adjustment), and an analysis of customers' accounts indicates uncollectible receivables of $17,900. Which of the following entries records the proper adjustment for Bad Debt Expense?

A) debit Allowance for Doubtful Accounts, $16,400; credit Bad Debt Expense, $16,400
B) debit Allowance for Doubtful Accounts, $19,400; credit Bad Debt Expense, $19,400
C) debit Bad Debt Expense $19,400; credit Allowance for Doubtful Accounts, $19,400
D) debit Bad Debt Expense, $16,400; credit Allowance for Doubtful Accounts, $16,400

Question 80

At the beginning of the year, the balance in the Allowance for Doubtful Accounts is a credit of $640. During the year, $350 of previously written-off accounts were reinstated and accounts totaling $410 are written-off as uncollectible. The end of the year balance (before adjustment) in the Allowance for Doubtful Accounts should be

A) $760
B) $410
C) $580
D) $700