Question 1

Bad debt expense is not debited when a company writes off an account receivable when using the allowance method because the company has already recorded the Bad Debt Expense as an adjusting entry.

Accepted Answer

When using the allowance method, the Bad Debt Expense is recorded as an adjusting entry at the end of the period based on an estimate of the amount of uncollectible accounts. When a specific account is deemed uncollectible and is written off, the Allowance for Doubtful Accounts is credited and the Accounts Receivable is debited, which reduces the balance of both accounts. The Bad Debt Expense is not debited again because it has already been recorded as an adjusting entry.

Question 2

Grabbe Enterprises uses the allowance method to account for uncollectible receivables.When an uncollectible account is written off,________.

Accepted Answer

The answer of Grabbe Enterprises uses the allowance method to...

Question 3

The percent-of-sales method calculates bad debts expense based on a percentage of net cash sales.

Accepted Answer

The percent-of-sales method calculates bad debts expense based on a percentage of net credit sales.

Question 4

When using the allowance method,the write-off of a receivable ________.

Accepted Answer

The write-off of a receivable reduces the amount of the Allowance for Bad Debts account as it involves removing the estimated uncollectible amount from the account. This does not directly affect net income, as the bad debt expense was recognized and recorded previously when the allowance was initially estimated. The write-off also decreases the accounts receivable balance and the net realizable value of the asset. There is no contra-revenue account involved in the write-off.

Question 5

On January 16,Whole Circle,Inc.sold $5,000 merchandise to Smith,on account.Whole Circle could not collect cash from Smith and wrote off the account.Prepare a journal entry to record the write-off,assuming Whole Circle uses the allowance method.

Accepted Answer

The answer of On January 16,Whole Circle,Inc.sold $5,000 merchandise to...

Question 6

Accounts Receivable has a balance of $4,000,and the Allowance for Bad Debts has a credit balance of $400.The allowance method is used.What is the net realizable value of Accounts Receivable after a $160 account receivable is written off?

Accepted Answer

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Question 7

The following information is from the records of Pangolin Camera Shop: $$\begin{array} { | l | r | } 
\hline 
\text { Accounts Receivable, December 31,2017 }& \$ 24,000 \text { (debit) } \
\hline\text { Allowance for Bad Debts, December 31,2017 } \
\text { prior to adjustment }&500 \text { (debit) }  \
\hline \text { Net credit sales for 2017 }&93,000 \
\hline \text { Accounts written off as uncollectible during } & \
 2017 &350 \
\hline 
\end{array}$$ Bad expense is estimated by the aging-of-receivables method.Management estimates that $3,050 of accounts receivable will be uncollectible.Calculate the amount of net accounts receivable after the adjustment for bad debts.

Accepted Answer

The answer of The following information is from the records...

Question 8

Two methods of estimating uncollectible receivables are ________.

Accepted Answer

The most commonly used methods for estimating uncollectible receivables are the aging-of-accounts-receivable method and the percent-of-sales method. The allowance method and the direct write-off method are also common, but not listed together as one option in the answer choices. The amortization method and percent-of-completion method are not relevant to estimating uncollectible receivables. The gross-up method is not a recognized accounting method for estimating uncollectible receivables.

Question 9

When using the allowance method,Allowance for Bad Debts is debited when an account receivable is written off.

Accepted Answer

This is true. When an account receivable is determined to be uncollectible and is written off, the Allowance for Bad Debts account is debited to reflect the reduction in expected future cash flows.

Question 10

When using the allowance method,the receipt of a payment on receivables that have been written-off requires an entry to reverse the write-off to the Allowance for Bad Debts account and an entry to record the receipt of cash.

Accepted Answer

When using the allowance method, the receipt of a payment on previously written-off receivables requires a reversal of the write-off to the Allowance for Bad Debts account and an entry to record the receipt of cash. This is because the allowance method estimates and records bad debt expenses before the actual write-off occurs, and when a payment is received on a previously written-off account, it is recognized as a recovery of that estimate.

Question 11

During July 2017,Bridgeport Enterprises recorded the following:
Sales of $86,400 ($64,500 on account,$21,900 for cash)
Collections on account,$58,950
Write-offs of uncollectible receivables,$2,560
Recovery of receivable previously written off,$1,000
Journalize Bridgeport's transactions during July,assuming Bridgeport uses the allowance method.

Accepted Answer

The answer of During July 2017,Bridgeport Enterprises recorded the following:
Sales...

Question 12

What is net realizable value? How is net realizable value affected when a receivable is written off under the allowance method?

Accepted Answer

The answer of What is net realizable value? How is...

Question 13

A company reports net accounts receivable of $152,000 on its December 31,2017 balance sheet.The Allowance for Bad Debts has a credit balance of $16,000.What is the balance of Accounts Receivable?

Accepted Answer

$152,000 + $16,000 = $168,000

Question 14

The percent-of-sales method calculates bad debts expense as a percentage of net credit sales.

Accepted Answer

The percent-of-sales method is a common way to estimate bad debts expense, and it involves calculating bad debts as a percentage of net credit sales. This method assumes that the percentage of credit sales that ultimately become uncollectible is consistent from one period to another. However, this method does not take into account specific accounts or customers that may have a higher or lower risk of defaulting on their payments.

Question 15

The aging-of-receivables method is a balance sheet approach of estimating uncollectible accounts.

Accepted Answer

The aging-of-receivables method focuses on the age of individual accounts receivable to estimate the total amount of uncollectible accounts, which is a balance sheet approach because it directly affects the reported amount of accounts receivable.

Question 16

When using the allowance method,after a company has previously written off an account,________.

Accepted Answer

When a customer pays on an account that has been previously written off, the company needs to reverse the write-off to the Allowance for Bad Debts account and then record the receipt of cash. This means that the company needs to re-establish the receivable account and make the necessary adjustments to their financial records. The company can still collect from these customers, although it may be more difficult since their accounts have already been written off. The company also does not need to continue sending monthly statements to customers whose accounts have been written off.

Question 17

The Allowance for Bad Debts account has a credit balance of $5,000 before the adjusting entry for bad debts expense.The company's management estimates that 5% of net credit sales will be uncollectible for the year 2017.Net credit sales for the year amounted to $280,000.What is the amount of Bad Debts Expense reported on the income statement for 2017?

Accepted Answer

$280,000 × 0.05 = $14,000

Question 18

The percent-of-sales method,used to compute bad debt expense,is also known as the balance sheet approach.

Accepted Answer

The percent-of-sales method is also known as the income statement approach, not the balance sheet approach.

Question 19

On January 16,2017,Eliot Brothers Oil,Inc.sold $5,000 of merchandise to Bryce,on account.Eliot Brothers could not collect cash from Bryce and wrote off the account on December 31,2017.On November 4,2018,Bryce unexpectedly paid $5,000.Journalize the transactions on December 31,2017 and November 4,2018.(Eliot Brothers uses the allowance method. )
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Accepted Answer

The answer of On January 16,2017,Eliot Brothers Oil,Inc.sold $5,000 of...

Question 20

The entry to write off an account receivable under the allowance method will ________.

Accepted Answer

Writing off an account receivable under the allowance method involves reducing both the accounts receivable and the allowance for doubtful accounts. This action has no effect on net income because the expense was already recognized when the allowance was initially estimated.

Quiz 8: Receivables