Question 1

On January 1, Year 2, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:
A) $36,200.
B) $33,400.
C) $35,000.
D) $34,200.

Accepted Answer

$37,000 - $800 = $36,200 accounts receivable balance after the write-off; $2,800 - $800 = $2,000 allowance balance after the write-off; $36,200 - $2,000 = $34,200 net realizable value after the write-off.

Question 2

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the Year 2 income statement will be:
A) $310.
B) $725.
C) $745.
D) $550.

Accepted Answer

$72,500 credit sales × 1% = $725 uncollectible accounts expense

Question 3

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $160,000 of revenue on account during Year 1. During Year 1, Hancock collected $128,000 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, Year 1 balance sheet would be:
A) $30,400.
B) $30,720.
C) $32,000.
D) $30,000.

Accepted Answer

$0 beginning accounts receivable + $160,000 revenue on account - $128,000 collected = $32,000 ending accounts receivable; $0 beginning allowance balance + ($160,000 × 1%) uncollectible accounts expense = $1,600 ending allowance balance; net realizable value of receivables = $32,000 - $1,600 = $30,400

Question 4

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is:
A) $97,000.
B) $104,000.
C) $89,520.
D) $95,060.

Accepted Answer

$97,000 cash collected from accounts receivable is a cash inflow for operating activities.

Question 5

The amount of accounts receivable that is actually expected to be collected is known as the:
A) allowance for doubtful accounts.
B) uncollectible accounts expense.
C) present value of accounts receivable.
D) net realizable value.

Accepted Answer

Net realizable value is calculated as the general ledger accounts receivable balance (what has been billed to customers, but not yet collected) minus allowance for doubtful accounts (the estimate of what a company believes is uncollectible).

Question 6

The Miller Company earned $190,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of Year 2 was:
A) $54,000.
B) $49,920.
C) $59,700.
D) $48,300.

Accepted Answer

$0 beginning balance + $190,000 revenue on account - $136,000 collections = $54,000 ending accounts receivable balance; $0 beginning balance + $5,700 uncollectible accounts expense - $0 write-offs = $5,700 ending allowance for doubtful accounts balance; $54,000 - $5,700 = $48,300 net realizable value

Question 7

A company that uses the allowance method to account for uncollectible accounts:
A) records Uncollectible Accounts Expense when a receivable is written off.
B) does not record uncollectible accounts until the amount becomes significant.
C) reports the net realizable value of its accounts receivable on the balance sheet.
D) None of these answer choices are correct.

Accepted Answer

A company that uses the allowance method estimates uncollectible accounts expense before they actually become uncollectible, using a contra-asset account known as allowance for doubtful accounts, and reports the net realizable value of accounts receivable on the balance sheet.

Question 8

Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During the year, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule:  What will Domino record as Uncollectible Accounts Expense for Year 2?
A) $6,132
B) $1,512
C) $7,292
D) $4,640

Accepted Answer

($104,000 × 1%) + ($45,000 × 5%) + ($9,920 × 10%) + ($4,440 × 25%) + ($3,800 × 50%) = $7,292 estimated ending allowance balance; $5,800 beginning allowance balance + uncollectible accounts expense - $4,640 write-offs = $7,292 ending allowance balance; uncollectible accounts expense = $7,292 - $5,800 + $4,640 = $6,132

Question 9

The year-end adjusting entry to recognize uncollectible accounts expense will:
A) decrease assets and decrease equity.
B) increase assets and decrease equity.
C) increase liabilities and increase equity.
D) decrease liabilities and increase equity.

Accepted Answer

The adjusting entry will decrease assets by increasing the contra-asset allowance for doubtful accounts and will increase uncollectible accounts expense, which decreases equity.

Question 10

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid'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.

Accepted Answer

The write-off decreases both the allowance for doubtful accounts account (a contra-asset) and accounts receivable (an asset) equally. Therefore, there is no net effect on assets or equity.

Question 11

Houff 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.

Accepted Answer

Houff must first reinstate the receivable that was previously written off. The reinstatement increases assets (accounts receivable) and decreases assets (increases the contra-asset allowance for doubtful accounts), with no overall effect on the financial statements. Next, Houff records collection of the receivable, which increases assets (cash) and decreases assets (accounts receivable), again with no overall effect on assets. The event is reported as a cash inflow for operating activities on the statement of cash flows.

Question 12

The practice of reporting the net realizable value of receivables in the financial statements is commonly called the:
A) cash flow method of accounting for uncollectible accounts.
B) allowance method of accounting for uncollectible accounts.
C) direct write-off method of accounting for uncollectible accounts.
D) accrual method of accounting for uncollectible accounts.

Accepted Answer

The allowance method dictates that a company report its receivables net of estimated uncollectible accounts.

Question 13

On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 of service on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is:
A) $320.
B) $1,000.
C) $2,080.
D) $1,940.

Accepted Answer

$104,000 sales on account × 2% = $2,080 uncollectible accounts expense

Question 14

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?
A) $2,200
B) $1,500
C) $700
D) $1,600

Accepted Answer

$900 beginning allowance balance - $1,500 write-offs + uncollectible accounts expense = $1,600 ending allowance balance; uncollectible accounts expense = $1,600 - $900 + $1,500 = $2,200

Question 15

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense using the allowance method? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Recording uncollectible accounts expense decreases assets (increases allowance for doubtful accounts) and increases expenses, which decreases net income and equity. It does not affect the statement of cash flows.

Question 16

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 answer choices are correct.

Accepted Answer

Accountants use a variety of methods to estimate uncollectible accounts expense. There is no requirement that they use a particular approach.

Question 17

The balance in Accounts Receivable at the beginning of the period amounted to $16,000. During the period $64,000 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $10,000, and uncollectible accounts expense amounted to $4,000, then the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement would be:
A) $66,000.
B) $64,000.
C) $80,000.
D) None of these answers are correct.

Accepted Answer

$16,000 beginning accounts receivable balance + $64,000 credit sales - $10,000 ending accounts receivable balance = $70,000 cash collected from customers; The $4,000 in uncollectible accounts expense does not affect accounts receivable, and does not affect cash flows.

Question 18

The Miller Company earned $190,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement was:
A) $5,700.
B) $1,320.
C) $4,080.
D) $54,000.

Accepted Answer

$190,000 revenue on account × 3% = $5,700

Question 19

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:
A) $29,075.
B) $27,725.
C) $28,950.
D) $28,400.

Accepted Answer

$31,000 beginning balance + $72,500 credit sales - $74,550 collections - $550 write-offs = $28,400 ending accounts receivable balance; $500 beginning allowance balance + $725 uncollectible account expense - $550 write-offs = $675 ending allowance balance; $28,400 accounts receivable - $675 allowance = $27,725 net realizable value

Question 20

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid's entry required to recognize the uncollectible accounts expense for Year 2 will:
A) increase total assets and retained earnings.
B) decrease total assets and increase retained earnings.
C) decrease total assets and net income.
D) increase total assets and decrease net income.

Accepted Answer

Recognizing uncollectible accounts expense decreases assets by increasing the contra-asset allowance for doubtful accounts and increases expenses, which decreases net income and retained earnings.

Quiz 5: Accounting for Receivables and Inventory Cost Flow

On January 1, Year 2, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

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

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

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

Houff 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?

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

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

How would accountants estimate the amount of a company's uncollectible accounts expense?