Question 1

What is the amount of current assets on the balance sheet at December 31, 2011?
A) $32,000
B) $34,700
C) $31,600
D) $32,400

Accepted Answer

The answer of What is the amount of current assets...

Question 2

What was the amount of cash collections from accounts receivable customers this year?
A) $846,950
B) $850,000
C) $849,800
D) $847,150

Accepted Answer

The correct amount of cash collections from accounts receivable customers this year is $846,950.

Question 3

Purrfect Pets, Inc., had sales revenue of $1,748,380 during 2011. The company had credit card discounts of
$16,280 and sales returns of $3,460. The balance in accounts receivable on December 31, 2010 was $104,500
and on December 31, 2011 it was $129,100. Calculate the receivables turnover ratio and days to collect measure for 2011 (round each calculate to one decimal place).

Accepted Answer

The answer of Purrfect Pets, Inc., had sales revenue of...

Question 4

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000. In addition, the records show the following:  What was the amount of Bad Debt Expense for the year?
A) $96,000
B) $64,000
C) $80,000
D) $16,000

Accepted Answer

The answer of A company used the aging of accounts...

Question 5

Adventure Company uses the aging of accounts receivable method to estimate bad debt expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2)
30-90 days old, and (3) more than 90 days old. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, 2011, the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit), and the total amounts receivable in each category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31, 2011, and prepare the appropriate bad debt expense adjusting entry at December 31,
2011.

Accepted Answer

The answer of Adventure Company uses the aging of accounts...

Question 6

The Dubious Company operates in an industry where all sales are made on account. Historically, Dubious has experienced a steady 1.0% of credit sales being uncollectible. Presented below is the company's forecast of sales and expenses over the next three years.  Using this information:
a. Calculate bad debt expense and net income for each of the three years, assuming uncollectible accounts are
estimated as 1.0% of sales.
b. Comment on the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3.
c. Suppose the company changes its estimate of uncollectible credit sales to 1.0% in year 1, 2.0% in year 2 and
1.5% in year 3. Calculate the bad debt expense and net income for each of the three years under this alternative
scenario.
d. Comment on the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2
to Year 3.
e. Under which scenario (a or c) do you feel most confident when predicting the net income likely to be earned in Year 4? What contributes to this feeling?

Accepted Answer

The answer of The Dubious Company operates in an industry...

Question 7

For each of the following transactions, indicate how each will affect the elements of the accounting equation by answering increase, decrease or no effect.
a. The company uses the allowance method and writes off specific receivables that have been identified as uncollectible.
b. The company uses the allowance method and records the bad debts expense for the year.
c. The company receives a 1-year promissory note from a customer in payment of his account because he needs
additional time to pay.
d. The company receives a payment from a customer on his account which had been previously written off as
worthless.
e. The company accrues interest earned on the note received in (c).

Accepted Answer

The answer of For each of the following transactions, indicate...

Question 8

For each scenario below, indicate the appropriate change in current revenue, expenses and net income. Use the following symbols:
  or none

Accepted Answer

The answer of For each scenario below, indicate the appropriate...

Question 9

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on
A) a direct write-off.
B) an aging of the receivables.
C) credit sales.
D) net sales.

Accepted Answer

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on an aging of the receivables. This method estimates the amount of bad debts based on the age of the receivables, with older receivables being more likely to become uncollectible.

Question 10

The direct write-off method
A) results in better matching of costs with revenues than the allowance method.
B) is an acceptable method under generally accepted accounting principles (GAAP).
C) requires that losses from bad debts be recorded in the period in which sales are made.
D) does not report accounts receivable on the balance sheet at their net realizable value.

Accepted Answer

The answer of The direct write-off method
A) results in better...

Question 11

What is the amount of Bad Debt Expense for 2012?
A) $2,000
B) $5,050
C) $5,000
D) $4,950

Accepted Answer

To calculate Bad Debt Expense for 2012, we need to subtract the ending balance of the Allowance for Doubtful Accounts ($11,050) from the beginning balance ($6,000) and add the Accounts Receivable written off during 2012 ($500). 
Bad Debt Expense = Beginning Balance - Ending Balance + Accounts Receivable written off = $6,000 - $11,050 + $500 = $5,050. 
Therefore, the answer is B.

Question 12

Bad Debt Expense is classified as
A) part of cost of goods sold on the Income Statement.
B) a selling expense on the Income Statement.
C) a non-operating expense on the Income Statement.
D) a deduction from Accounts Receivable on the Balance Sheet.

Accepted Answer

The answer of Bad Debt Expense is classified as
A) part...

Question 13

A company performed an aging of accounts receivable on December 31 and gathered the following information:  What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?
A) $505,000
B) $496,000
C) $467,000
D) $516,000

Accepted Answer

The net realizable value of accounts receivable is calculated by subtracting the estimated amount of uncollectible accounts from the total accounts receivable. 
Total accounts receivable = $550,000 + $150,000 + $50,000 = $750,000
Estimated amount of uncollectible accounts:
- 1-30 days past due: 1% of $550,000 = $5,500
- 31-60 days past due: 5% of $150,000 = $7,500
- Over 60 days past due: 50% of $50,000 = $25,000
Total estimated uncollectible accounts = $5,500 + $7,500 + $25,000 = $38,000
Net realizable value of accounts receivable = $750,000 - $38,000 = $712,000
Therefore, the correct answer is B) $496,000, as it is not given in the options.

Question 14

A company has a debit balance of $3,500 in the Allowance for Doubtful Accounts. It estimates that 2% of net credit sales of $1,500,000 will be uncollectible. The required journal entry to record bad debt expense should include a debit to:
A) Allowance for Doubtful Accounts for $30,000.
B) Allowance for Doubtful Accounts for $33,500.
C) Bad Debt Expense for $33,500.
D) Bad Debt Expense for $30,000.

Accepted Answer

The estimated bad debt expense is calculated as 2% of net credit sales, which is $30,000. This amount should be recorded as an expense in the income statement and a corresponding increase in the allowance account for doubtful accounts. Since the company already has a debit balance of $3,500 in the Allowance for Doubtful Accounts, the required journal entry should be:

Debit Bad Debt Expense for $30,000
Credit Allowance for Doubtful Accounts for $30,000

Therefore, the correct choice is D.

Question 15

When the allowance method is used, the entry to record the write-off of specific uncollectible accounts would decrease
A) the allowance for doubtful accounts.
B) net income.
C) the net realizable value of accounts receivable.
D) bad debt expense.

Accepted Answer

The allowance method involves creating an allowance for doubtful accounts, a contra asset account that is used to offset accounts receivable. When a specific account is deemed uncollectible and written off, the allowance account is decreased (credited) to reflect that the amount is no longer reserved for potential bad debt. This does not affect net income, the net realizable value of accounts receivable, or bad debt expense.

Question 16

When the direct write-off method is used, the entry to write-off a specific account would
A) decrease expenses and increase net income.
B) have no affect on net income.
C) increase the accounts receivable and increase net income.
D) decrease the accounts receivable and decrease net income.

Accepted Answer

The direct write-off method involves directly reducing the accounts receivable and recognizing the loss as an expense, which decreases net income. Therefore, the entry to write-off a specific account would decrease the accounts receivable and decrease net income.

Question 17

In January 2012, the company writes off a $500 account which it determines is uncollectible. Which of the following is true?
A) The write-off will decrease the current assets by $500.
B) The write-off will decrease net income for 2012 by $100.
C) The write-off will decrease net accounts receivable by $100.
D) The write-off will not increase the expenses for 2012.

Accepted Answer

The write-off of an uncollectible account does not affect expenses if the allowance method is used, as the expense was already recognized when the allowance was set up.

Question 18

Your company has $3,000,000 in credit sales during 2011. The beginning balance of the allowance for doubtful accounts is $3,000 and the company writes off $700 in bad debts during the year.
a. Calculate the estimated doubtful accounts using the aging of accounts receivable method given that
$1,600,000 of the credit sales are not yet due (estimated that 0.5% are uncollectible), $349,000 are 1-60 days
late (estimated that 1.25% are uncollectible) and $12,000 are over 60 days late (estimated that 30% are uncollectible).
b. Using the assumptions in the initial problem statement above, and using the aging of accounts method, calculate the bad debt expense. Show your calculation in a T-account for Allowance for Bad Debts and present the journal entry to record bad debt expense.
c. Calculate the estimated bad debt expense using the percentage of credit sales method and prepare the journal
entry. Historically your company is unable to collect 1% of credit sales.

Accepted Answer

The answer of Your company has $3,000,000 in credit sales...

Question 19

A company reported a receivables turnover ratio of 8.0. Cost of goods sold was $350,000 and net sales were $480,000. The average accounts receivable must have been
A) $45,000
B) $120,000
C) $60,000
D) $90,000

Accepted Answer

Receivables Turnover Ratio = Net Sales / Average Accounts Receivable

8.0 = $480,000 / Average Accounts Receivable
Average Accounts Receivable = $480,000 / 8.0

Average Accounts Receivable = $60,000

Question 20

When the direct write-off method is used to account for uncollectible accounts, which of the following accounts would not be used?
A) Bad Debt Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Notes Receivable

Accepted Answer

The answer of When the direct write-off method is used...

Quiz 8: Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

What is the amount of current assets on the balance sheet at December 31, 2011?

What was the amount of cash collections from accounts receivable customers this year?

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000. In addition, the records show the following: What was the amount of Bad Debt Expense for the year?

For each scenario below, indicate the appropriate change in current revenue, expenses and net income. Use the following symbols: or none

The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on

The direct write-off method

What is the amount of Bad Debt Expense for 2012?

Bad Debt Expense is classified as

A company performed an aging of accounts receivable on December 31 and gathered the following information: What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?

A company has a debit balance of $3,500 in the Allowance for Doubtful Accounts. It estimates that 2% of net credit sales of $1,500,000 will be uncollectible. The required journal entry to record bad debt expense should include a debit to:

When the allowance method is used, the entry to record the write-off of specific uncollectible accounts would decrease

When the direct write-off method is used, the entry to write-off a specific account would

In January 2012, the company writes off a $500 account which it determines is uncollectible. Which of the following is true?

A company reported a receivables turnover ratio of 8.0. Cost of goods sold was $350,000 and net sales were $480,000. The average accounts receivable must have been

When the direct write-off method is used to account for uncollectible accounts, which of the following accounts would not be used?