Question 1

Which of the following statements is a correct representation of the effect of the reinstatement of an accounts receivable account previously written off?
A) Days' sales in receivables increases by the reinstatement of the account.
B) Return on sales decreases by the reinstatement of the account.
C) Days' sales in receivables is not affected by the reinstatement of the account.
D) Return on sales is not affected by the reinstatement of the account.

Accepted Answer

The answer of Which of the following statements is a...

Question 2

Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the year, and an analysis of customers' accounts indicates doubtful accounts of $12,900.Which of the following records the proper provision for doubtful accounts?
A) Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful Accounts, $14,000
B) Decrease Allowance for Doubtful Accounts, $14,000; decrease Uncollectible Accounts Expense, $14,000
C) Decrease Allowance for Doubtful Accounts, $11,800; decrease Uncollectible Accounts Expense, $11,800
D) Increase Uncollectible Accounts Expense, $11,800; increase Allowance for Doubtful Accounts, $11,800

Accepted Answer

The provision for doubtful accounts should reflect the estimated amount of accounts receivable that will not be collected. The analysis of customers' accounts indicates doubtful accounts of $12,900, which is the estimated amount of uncollectible accounts. The current balance in the Allowance for Doubtful Accounts account is $1,100, which means that the account needs to be increased by $11,800 ($12,900 - $1,100) to reflect the estimated doubtful accounts. This increase is recorded as a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts, so the proper journal entry is to increase Uncollectible Accounts Expense, $11,800, and increase Allowance for Doubtful Accounts, $11,800. Therefore, the correct choice is D.

Question 3

A transaction in which a company sells its receivables and immediately receives cash for operating and other needs is called _____.
A) adjusting
B) assigning
C) factoring
D) discounting

Accepted Answer

This is because factoring involves selling accounts receivable to a third party (known as a factor) at a discount in exchange for immediate cash. Option A, adjusting, refers to changes made to accounts to reflect the correct balance. Option B, assigning, refers to transferring ownership of an asset or a right, which may include accounts receivable. Option D, discounting, involves selling accounts receivable to a financial institution at a discount, and typically requires the seller to bear some of the risk if the accounts become delinquent.

Question 4

Days' sales in receivables estimates the average number of days it takes to:
A) collect cash sales.
B) convert inventory to sales.
C) collect accounts receivables.
D) convert raw material to inventory.

Accepted Answer

Days' sales in receivables estimates the average number of days it takes to collect accounts receivables.

Question 5

Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $300,000, compute the amount of the adjustment to record the provision for doubtful accounts.
A) $400.
B) $3,400.
C) $3,000.
D) $2,600.

Accepted Answer

To calculate the provision for doubtful accounts, we need to multiply uncollectible accounts expense by net sales:

Uncollectible accounts expense = 1% of $300,000 = $3,000

The adjustment needed to record the provision for doubtful accounts is the difference between the desired ending balance of Allowance for Doubtful Accounts and its current balance:

Desired ending balance = current balance + uncollectible accounts expense - write-offs
write-offs = 0 (not given)

Desired ending balance = $400 + $3,000 - $0 = $3,400

Therefore, the amount of the adjustment to record the provision for doubtful accounts is:

Adjustment = Desired ending balance - Current balance
Adjustment = $3,400 - $400 = $3,000

The correct choice is C, $3,000.

Question 6

What type of account is Allowance for Doubtful Accounts?
A) Contra asset account
B) Asset account
C) Liability account
D) Expense account

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account used to reduce the balance in Accounts Receivable to reflect the amount of receivables that are not expected to be collected.

Question 7

At the end of the current year, Jackson Inc.has an Accounts Receivable balance of $200,000 and Allowance for Doubtful Accounts has a negative balance of $(60,000).What is the net realizable value of the receivables?
A) $60,000
B) $260,000
C) $200,000
D) $140,000

Accepted Answer

The net realizable value of the receivables is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable balance. Therefore, $200,000 - $60,000 = $140,000.

Question 8

Taxes receivable is classified as:
A) other receivable.
B) notes receivable.
C) accounts receivable.
D) trade receivables.

Accepted Answer

Taxes receivable is not a trade or notes receivable since it is not a result of a sale or exchange transaction. It is also not an account receivable because it does not arise from a credit sale of goods or services. Therefore, it is classified as "other receivable".

Question 9

Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Compute the adjusted balance in the allowance for doubtful accounts?
A) $15,000
B) $14,500
C) $14,000
D) $15,500

Accepted Answer

The adjusted balance in the Allowance for Doubtful Accounts should directly reflect the estimated doubtful accounts, which is $15,000, regardless of its unadjusted balance.

Question 10

Ariel Inc.uses the allowance method of accounting for uncollectible accounts receivable and estimates that 2% of the credit sales of $1,650,000 for the year ended will be uncollectible.Allowance for Doubtful Accounts has a negative unadjusted balance of $(1,600) at the end of the year.Determine the amount of the adjustment to record the provision for doubtful accounts.
A) $33,000
B) $31,400
C) $34,600
D) $30,000

Accepted Answer

The adjustment is calculated as 2% of $1,650,000, which equals $33,000. The unadjusted balance of $(1,600) does not affect the calculation of the provision for the current year.

Question 11

Jack Inc.offers a credit term of n/30.This means that the company:
A) receives money from the customers 30 days after the of sale of the goods.
B) offers a 30-day loan to the suppliers.
C) expects to collect receivables every 30 days.
D) pays its creditors within 30 days of the purchase of raw materials.

Accepted Answer

The answer of Jack Inc.offers a credit term of n/30.This...

Question 12

The due date of a 60-day note dated July 12 is:
A) September 11.
B) September 8.
C) September 9.
D) September 10.

Accepted Answer

The answer of The due date of a 60-day note...

Question 13

A 90-day, 10% note for $10,000 dated March 15 is received from a customer on account.The face value of the note is:
A) $10,250.
B) $9,000.
C) $9,750.
D) $10,000.

Accepted Answer

The face value of the note is the amount written on the note itself, which is $10,000.

Question 14

The two methods of accounting for uncollectible receivables are the:
A) direct method and the indirect method.
B) allowance method and the direct write-off method.
C) cash method and the accrual method.
D) percent of sales method and the analysis of receivables method.

Accepted Answer

The two methods of accounting for uncollectible receivables are the allowance method and the direct write-off method. The allowance method involves estimating the amount of uncollectible receivables and creating an allowance account to reflect this estimate, while the direct write-off method involves writing off uncollectible receivables as they are identified. The allowance method is the preferred method as it conforms to the matching principle and provides a more accurate representation of accounts receivable on the balance sheet.

Question 15

The analysis of receivables method of costing inventory is based on the assumption that:
A) the uncollectible accounts can be estimated as a percentage of credit sales.
B) the bad debt expense is recorded by estimating uncollectible accounts at the end of the accounting period.
C) the bad debt expense is recorded only when an account is determined to be worthless.
D) the longer an account receivable is outstanding, the less likely that it will be collected.

Accepted Answer

The analysis of receivables method assumes that the likelihood of collecting an account decreases as the account remains outstanding for a longer period.

Question 16

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) adjusts allowance account the end of the year.
D) is based on estimates.

Accepted Answer

The direct write-off method violates the matching principle because it delays the recognition of expenses until the period in which the company decides to write off the bad debt, rather than recognizing the expense in the same period as the related revenue. This can result in an overstatement of net income in one period and an understatement in another.

Question 17

Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Which of the following records the proper provision for doubtful accounts?
A) Increase Uncollectible Accounts Expense, $800; increase Allowance for Doubtful Accounts, $800
B) Increase Uncollectible Accounts Expense $15,000; increase Allowance for Doubtful Accounts, $15,000
C) Increase Uncollectible Accounts Expense, $14,200; increase Allowance for Doubtful Accounts, $14,200
D) Increase Uncollectible Accounts Expense, $15,800; increase Allowance for Doubtful Accounts, $15,800

Accepted Answer

The unadjusted balance of $800 in the Allowance for Doubtful Accounts is already included in the $15,000 analysis of doubtful accounts. Therefore, the necessary adjustment is the difference between the total doubtful accounts of $15,000 and the unadjusted balance of $800, which is $14,200. This amount should be recorded as an increase in both the Uncollectible Accounts Expense and the Allowance for Doubtful Accounts. Option C records this adjustment correctly.

Question 18

Georgia Inc.reported operating income of $156,000 and sales of $1,300,000 for the current year end.Determine the company's return on sales.
A) 10%
B) 8%
C) 15%
D) 12%

Accepted Answer

The answer of Georgia Inc.reported operating income of $156,000 and...

Question 19

A 90-day, 8% note for $10,000 dated May 1 is received from a customer on account.The maturity value of the note is (Assume 360 days in a year):
A) $10,000.
B) $10,800.
C) $10,200.
D) $9,800.

Accepted Answer

The maturity value of the note is calculated by adding the interest earned to the principal amount. Interest = Principal × Rate × Time = $10,000 × 8% × (90/360) = $200. Therefore, the maturity value = Principal + Interest = $10,000 + $200 = $10,200.

Question 20

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of $25,000.What is the net realizable value of the accounts receivable?
A) $25,000
B) $525,000
C) $500,000
D) $475,000

Accepted Answer

The net realizable value of accounts receivable is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable balance. Therefore, the net realizable value in this scenario is $475,000 ($500,000 - $25,000).

Quiz 6: Receivables and Inventories

Which of the following statements is a correct representation of the effect of the reinstatement of an accounts receivable account previously written off?

Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the year, and an analysis of customers' accounts indicates doubtful accounts of $12,900.Which of the following records the proper provision for doubtful accounts?

A transaction in which a company sells its receivables and immediately receives cash for operating and other needs is called _____.

Days' sales in receivables estimates the average number of days it takes to:

Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $300,000, compute the amount of the adjustment to record the provision for doubtful accounts.

What type of account is Allowance for Doubtful Accounts?

At the end of the current year, Jackson Inc.has an Accounts Receivable balance of $200,000 and Allowance for Doubtful Accounts has a negative balance of $(60,000) .What is the net realizable value of the receivables?

Taxes receivable is classified as:

Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Compute the adjusted balance in the allowance for doubtful accounts?

Jack Inc.offers a credit term of n/30.This means that the company:

The due date of a 60-day note dated July 12 is:

A 90-day, 10% note for $10,000 dated March 15 is received from a customer on account.The face value of the note is:

The two methods of accounting for uncollectible receivables are the:

The analysis of receivables method of costing inventory is based on the assumption that:

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

Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year, and an analysis of accounts in the customers' ledger indicates doubtful accounts of $15,000.Which of the following records the proper provision for doubtful accounts?

Georgia Inc.reported operating income of $156,000 and sales of $1,300,000 for the current year end.Determine the company's return on sales.

A 90-day, 8% note for $10,000 dated May 1 is received from a customer on account.The maturity value of the note is (Assume 360 days in a year) :

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of $25,000.What is the net realizable value of the accounts receivable?