Question 1

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, a payment on previously written-off receivables means that the entry needs to be reversed in the Allowance for Bad Debts account and the receipt of cash needs to be recorded.

Question 2

Accounts Receivable has a balance of $6,000,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 $150 account receivable is written off?

Accepted Answer

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Question 3

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. )

Accepted Answer

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

Question 4

The following information is from the records of Pangolin Camera Shop:

Bad expense is estimated by the aging-of-receivables method.Management estimates that $2,950 of accounts receivable will be uncollectible.Calculate the amount of net accounts receivable after the adjustment for bad debts.

Accepted Answer

B)$25,000 - $2,950 = $22,050

Question 5

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 6

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 7

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

Accepted Answer

When using the allowance method, Allowance for Bad Debts is debited when an account receivable is written off to reflect the reduction in the estimated amount of bad debts. This results in a decrease in the net amount of accounts receivable carried on the balance sheet.

Question 8

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 9

Two methods of estimating uncollectible receivables are ________.

Accepted Answer

The two methods of estimating uncollectible receivables are the aging-of-accounts-receivable method and the percent-of-sales method. The aging-of-accounts-receivable method estimates uncollectible accounts based on the length of time the accounts have been outstanding. The percent-of-sales method estimates uncollectible accounts based on a percentage of sales for the period.

Question 10

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 company records an adjusting entry to the Bad Debt Expense account at the end of each accounting period to estimate the amount of uncollectible accounts. When an account receivable is eventually deemed uncollectible and written off, it is simply a reduction of the Accounts Receivable account and a corresponding decrease to the Allowance for Doubtful Accounts account. Therefore, Bad Debt Expense does not need to be debited again since it was already accounted for in the adjusting entry.

Question 11

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

Accepted Answer

The aging-of-receivables method is indeed a balance sheet approach used to estimate the amount of uncollectible accounts. It involves categorizing outstanding receivables by age and applying different percentages to each category to determine the expected uncollectible amount.

Question 12

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.

Question 13

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 14

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 restores the account to its previously written-off state and allows the company to keep track of the amount that is still owed. The company would not continue to send monthly statements to customers whose accounts have been written off, and while it may still be possible to collect from these customers, it would require additional efforts on the part of the company. The company would also not need to re-establish the receivable account as it had already been written off.

Question 15

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

Accepted Answer

When an uncollectible account is written off using the allowance method, it does not affect net income because the expense was already estimated and recorded in a prior period. The entry involves debiting the Allowance for Bad Debts and crediting Accounts Receivable.

Question 16

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 debt expense by using a percentage of net credit sales. This method is based on the assumption that a certain percentage of credit sales will ultimately be uncollectible. The percentage used may vary depending on the company's historical experience or industry averages.

Question 17

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 focuses on matching bad debt expense with the sales they relate to and is therefore an income statement approach. The balance sheet approach, on the other hand, focuses on estimating the ending balance of accounts receivable and is used to determine the required allowance for doubtful accounts.

Question 18

A company reports net accounts receivable of $154,000 on its December 31,2017 balance sheet.The Allowance for Bad Debts has a credit balance of $17,000.What is the balance of Accounts Receivable?

Accepted Answer

C)$154,000 + $17,000 = $171,000

Question 19

The Allowance for Bad Debts account has a credit balance of $3,000 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 $290,000.What is the amount of Bad Debts Expense reported on the income statement for 2017?

Accepted Answer

A)$290,000 × 0.05 = $14,500

Question 20

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.

Quiz 9: Receivables