Deck 7: Accounting for Receivables

Question 1

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

Answer 1

True
Explanation: Net realizable value is required by GAAP unless uncollectible accounts are immaterial.

Question 2

The percent of revenue method for estimating uncollectible accounts expense is considered superior to the percent of receivables method because it is more conservative.

Answer 2

False
Explanation: The percent of receivables method is considered to be superior to the percent of revenue method because it is based on aging of receivables.

Question 3

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

Answer 3

True
Explanation: Net realizable value is calculated as accounts receivable minus allowance for doubtful accounts.

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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, and Uncollectible Accounts Expense will be the difference between that amount and the current balance in the allowance.

Question 11

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

Question 12

A company that uses the direct write-off method of accounting for uncollectible accounts must still prepare a year-end adjusting entry to estimate its uncollectibles.

Question 13

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

Question 14

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

Question 15

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

Question 16

Warner Company had $400,000 in credit sales for 2013, 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 $76,000. Warnock had never used the allowance method to account for its receivables till 2013. The net realizable value of its accounts receivable at the end of the year was $68,000.

Question 17

When a customer's account, previously written off as uncollectible, is reinstated, the net realizable value of Accounts Receivable increases.

Question 18

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

Question 19

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

Question 20

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

Question 21

The longer it takes to collect accounts receivable, the greater the opportunity cost incurred.

Question 22

The year-end adjusting entry to accrue interest on a note receivable is an asset source transaction.

Question 23

Making a loan to another party is considered an investing activity on the statement of cash flows.

Question 24

On June 1, 2013, Cho Company collected a $12,000 note receivable that had been issued on June 1, 2012. The note carried a 6% interest rate. The interest revenue recognized on the maturity date is $720.

Question 25

Accepting credit cards is usually more costly to a business than offering credit directly to customers.

Question 26

On January 1, 2013, the Accounts Receivable balance was $18,500 and the balance in the Allowance for Doubtful Accounts was $1,400. On January 15, 2013 a $400 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

A)$18,100.
B)$16,700.
C)$17,100.
D)$17,500.

Question 27

The direct write-off method of accounting for uncollectible accounts overstates assets on the balance sheet.

Question 28

Carter Company's sales for 2013 were $8,700,000. Its accounts receivable were $720,000 at the beginning of 2013 and $801,000 at the end of the year. The accounts receivable turnover ratio for the year was 12.1.

Question 29

With the direct write-off method, writing off an account receivable is an asset use transaction.

Question 30

When a company accepts a credit card payment for a sale, the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.

Question 31

Other things being equal, the longer a company's operating cycle, the higher its operating costs are likely to be.

Question 32

The amount of uncollectible accounts expense recognized on the 2013 income statement is:

A)$160.
B)$500.
C)$970.
D)$1,040.

Question 33

The operating cycle is the length of time that a company spends acquiring inventory to sell.

Question 34

The amount of uncollectible accounts expense recognized on the 2011 income statement was

A)$2,040.
B)$660.
C)$2,850.
D)$27,000.

Question 35

Based on this information, the amount of cash flow from operating activities that would appear on the 2013 statement of cash flows is:

A)$47,530.
B)$52,000.
C)$44,760.
D)$48,500.

Question 36

The year-end adjusting entry to recognize uncollectible accounts expense will

A)increase assets and decrease equity.
B)decrease assets and decrease equity.
C)increase liabilities and increase equity.
D)decrease liabilities and increase equity.

Question 37

The amount of uncollectible accounts expense recognized in the 2013 income statement will be:

A)$1,450.
B)$620.
C)$1,491.
D)$1,100.

Question 38

Collection of a credit card receivable is an asset source transaction.

Question 39

The balance in Accounts Receivable at the beginning of the period amounted to $1,600. During the period $6,400 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $1,000, and uncollectible accounts expense amounted to $400, then the amount of cash inflow from customers that would appear in the operating section of the cash statement would be:

A)$6,600.
B)$6,400.
C)$8,000.
D)None of these.

Question 40

The net realizable value of Morgan's receivables at the end of 2011 was

A)$24,150.
B)$24,960.
C)$29,850.
D)$27,000.

Question 41

The practice of reporting the net realizable value of receivables in the financial statements is commonly called:

A)the cash flow method of accounting for uncollectible accounts.
B)the direct write-off method of accounting for uncollectible accounts.
C)the allowance method of accounting for uncollectible accounts.
D)the accrual method of accounting for uncollectible accounts.

Question 42

The net realizable value of receivables appearing on Karma's 2013 balance sheet will amount to:

A)$55,350.
B)$55,450.
C)$57,900.
D)$56,800.

Question 43

Which of the following answers correctly states the effect of recording the reestablishment of the receivable on April 4, 2013?

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

Question 44

Harvey Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation?

A)Increase assets and increase equity.
B)Increase assets and decrease liabilities.
C)Reduce liabilities and increase equity.
D)Have no effect on assets, liabilities or equity.

Question 45

Hailey Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $80,000 of revenue on account during 2013. During 2013, Hailey collected $64,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, 2013 balance sheet would be:

A)$15,360.
B)$15,200.
C)$16,000.
D)$15,000.

Question 46

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense?

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

Question 47

Jobin Company ended 2012 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $46,000 and $1,800, respectively. During 2013, Jobin wrote off $3,000 of Uncollectible Accounts. After aging its receivables, Jobin estimates that the ending Allowance for Doubtful Accounts balance should be $3,200. What will Jobin report as Uncollectible Accounts Expense on its 2013 income statement?

A)$3,200
B)$4,400
C)$1,400
D)$3,000

Question 48

The amount of accounts receivable that is actually expected to be collected is known as:

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

Question 49

A company that uses the allowance method to account for uncollectible accounts

A)Reports the net realizable value of its accounts receivable on the balance sheet.
B)Does not record uncollectible accounts until the amount becomes significant.
C)Records Uncollectible Accounts Expense when a receivable is written off.
D)None of these.

Question 50

Which of the following answers correctly states the effect of the February 2013 entry to write off the customer's account?

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

Question 51

Karma's entry to recognize the write-off of the uncollectible accounts will

A)increase total assets and total equity.
B)increase total assets and decrease total equity.
C)decrease total assets and total equity.
D)not affect total assets or total equity.

Question 52

Valdez Company uses the percent of receivables method to estimate uncollectible accounts expense. Valdez began 2013 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $38,250 and $2,900, respectively. During the year, the company wrote off $2,320 in uncollectible accounts. In preparation for the company's 2013 estimate, Valdez prepared the following aging schedule: What will Valdez record as Uncollectible Accounts Expense for 2013?

A)$3,646
B)$746
C)$3,066
D)$2,320

Question 53

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

A)The account is an income statement account.
B)The account is a contra account.
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 54

The primary reason for a business to allow customers to purchase goods or services on account is to:

A)decrease the marketability of the company's inventory.
B)increase cash flow from financing.
C)decrease cost of goods sold.
D)increase sales.

Question 55

Which of the following answers correctly shows the effect of the December 31, 2012 adjusting entry for uncollectible accounts on the financial statements of the Lindley Corporation?

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

Question 56

Karma's entry required to recognize the uncollectible accounts expense for 2013 will

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

Question 57

The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:

A)have no effect on total assets or total equity.
B)increase total equity only.
C)decrease total assets.
D)increase total assets and total equity.

Question 58

The percent of receivables method to estimate uncollectible accounts expense is also known as:

A)the income statement approach.
B)the direct write-off approach.
C)the balance sheet approach.
D)the credit sales approach.

Question 59

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.

Question 60

Which of the following answers correctly states the effect of recording the collection of the reestablished receivable on April 4, 2014?

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

Question 61

Which of the following is not considered a "cost" of financing credit sales?

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

Question 62

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)A Christmas tree farm.
D)An antiques dealer.

Question 63

What does the accounts receivable turnover ratio measure?

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

Question 64

Einstein Company accepted credit card payments for $20,000 of services provided to customers. The credit card company charges a 3% service charge. This transaction would

A)increase revenue by $20,000.
B)increase assets by $20,000.
C)increase Retained Earnings by $19,400.
D)a and C.The credit card sale increases assets by $19,400 (accounts receivable - credit card), increases revenue by $20,000, and increases expenses by $600. This increases net income and equity (retained earnings) by $19,400.

Question 65

Ahmed Company accepts a credit card as payment for $950 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Ahmed's financial statements.

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

Question 66

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

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

Question 67

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

Question 68

Which of the following correctly shows the effects of the sale on July 7? Assume that the credit card fee is recorded on the date of sale.

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

Question 69

Goran Company accepted a credit card account receivable in exchange for $5,500 of services provided to a customer. The credit card company charges a 5% service charge. The collection of cash from the credit card company when it settles the account receivable balance will act to:

A)increase assets by $275.
B)decrease assets and equity by $275.
C)increase assets by $5,500.
D)none of these.

Question 70

A firm's operating cycle can be determined by:

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 the receivable turnover.

Question 71

When is it acceptable to use the direct write-off method of accounting for uncollectible accounts?

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.

Question 72

The following information is available for Bluefield Company for the most recent year. What was Bluefield's operating cycle for the most recent year? (rounded)

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

Question 73

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

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

Question 74

The party that issues a promissory note is known as the

A)lender.
B)maker.
C)borrower.
D)both B and C

Question 75

Fleur de Lis Florist uses the allowance method to account for uncollectible accounts. Unable to collect a $200 account from a customer, Fleur de Lis determined it was uncollectible. How would the write-off of this account affect the company's financial statement?

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

Question 76

Rinehart Company made a loan of $8,000 to one of the company's employees on April 1, 2013. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rinehart would report in 2013 and 2014, respectively would be:

A)$480, $0
B)$0, $480
C)$360, $120
D)$120, $360

Question 77

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

A)One method requires the estimation of 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 writing off of uncollectible accounts and the other does not.

Question 78

Assume that the Lindley Corporation uses the direct write-off method of accounting for uncollectible accounts. Which of the following answers correctly describes the effect of the write-off of the customer's account on Lindley's financial statements?

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

Question 79

Which of the following general journal entries would be used to recognize $7,500 of uncollectible accounts expense under the direct write-off method?

A)
B)
C)
D)

Question 80

Raymond Company reports the following information for the 2014 fiscal year: Determine the average number of days it takes Raymond to collect its accounts receivable. (Round intermediate calculations to 2 decimal places.)

A)27
B)14
C)25
D)20