Question 1

The percentage of receivables basis for estimating uncollectible accounts emphasizes

Accepted Answer

The percentage of receivables basis for estimating uncollectible accounts focuses on calculating the cash realizable value of accounts receivable. It determines the amount of receivables that can actually be collected and is therefore an important measure of a company's ability to collect its debts.

Question 2

An aging of a company's accounts receivable indicates that $6000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 credit balance the adjustment to record bad debts for the period will require a

Accepted Answer

The aging of accounts receivable indicates that $6000 are estimated to be uncollectible. Since there is already a credit balance of $800 in the Allowance for Doubtful Accounts, only the remaining $5200 ($6000 - $800) needs to be recorded as Bad Debt Expense. Therefore, the adjustment would require a debit to Bad Debt Expense for $5200.

Question 3

In 2016 Winslow Company had net credit sales of $1250000. On January 1 2016 Allowance for Doubtful Accounts had a credit balance of $25000. During 2016 $32000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $360000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31 2016?

Accepted Answer

The required adjustment to the Allowance for Doubtful Accounts can be calculated using two methods - aging of accounts receivable and percentage of receivables basis. Here, we are given that the company uses the percentage of receivables basis which requires the allowance to be a certain percentage of the balance in receivables.

Step 1: Calculate the required balance for the Allowance for Doubtful Accounts using the percentage of receivables basis:

Required balance = 10% of accounts receivable at December 31, 2016
Required balance = 10% of $360,000 = $36,000

Step 2: Calculate the current balance for the Allowance for Doubtful Accounts:

Current balance = Credit balance of $25,000 on January 1, 2016 - $32,000 of uncollectible accounts receivable written off during 2016
Current balance = $25,000 - $32,000 = -$7,000

Since the current balance is a credit balance, it means that the allowance was not sufficient to cover the actual bad debts written off during the year. Therefore, we need to increase the allowance by the difference between the required balance and the current balance.

Step 3: Calculate the required adjustment to the Allowance for Doubtful Accounts:

Required adjustment = Required balance - Current balance
Required adjustment = $36,000 - (-$7,000) = $43,000

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2016 is $43,000. The answer is C.

Question 4

Valli Company uses the percentage of sales method for recording bad debts expense. For the year cash sales are $700000 and credit sales are $2500000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Valli Company make to record the bad debts expense? a.
$\begin{array}{lrr}
  \text { Bad Debt Expense } &32,000\
 \text {  Allowance for Doubtful Accounts} &&32,000\
\end{array}$

b. 
$\begin{array}{lrr}
  \text { Bad Debt Expense } &25,000\
 \text {Allowance for Doubtful Accounts  } &&25,000\
\end{array}$

c. 
$\begin{array}{lrr}
  \text {Bad Debt Expense  } &25,000\
 \text { Accounts Receivable } &&25,000\
\end{array}$

d.  
$\begin{array}{lrr}
  \text { Bad Debt Expense }&32,000\
 \text {Accounts Receivable  } &&32,000\
\end{array}$

Accepted Answer

The answer of Valli Company uses the percentage of sales...

Question 5

An aging of a company's accounts receivable indicates that $4000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $700 debit balance the adjustment to record bad debts for the period will require a

Accepted Answer

The correct adjustment is to debit Bad Debt Expense for $4700. This is because the existing $700 debit balance in the Allowance for Doubtful Accounts needs to be offset to reach the new estimated uncollectible amount of $4000. Therefore, $4000 + $700 = $4700 needs to be debited to Bad Debt Expense to correctly adjust the allowance account to the new estimate.

Question 6

Using the following information: $$\begin{array} { l r } 
&\underline { 12 / 31 / 15 } \
\text { Accounts receivable } &  \$ 525,000 \
\text { Allowance } &\underline { ( 40,000 ) } \
\text { Cash realizable value } & \underline { \$ 485,000 }\
\end{array}$$

- During 2016 sales on account were $145000 and collections on account were $100000. Also during 2016 the company wrote off $5000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $45000. The change in the cash realizable value from the balance at 12/31/15 to 12/31/16 was a

Accepted Answer

The cash realizable value is the amount of accounts receivable that is expected to be collected. The change in the cash realizable value from the balance at 12/31/15 to 12/31/16 is $485,000 - $450,000 = $35,000.

Question 7

A company has net credit sales of $750000 for the year and it estimates that uncollectible accounts will be 3% of sales. If Allowance for Doubtful Accounts has a credit balance of $3000 prior to adjustment its balance after adjustment will be a credit of

Accepted Answer

The answer of A company has net credit sales of...

Question 8

Using the following information: $$\begin{array} { l r } 
&\underline { 12 / 31 / 15 } \
\text { Accounts receivable } &  \$ 525,000 \
\text { Allowance } &\underline { ( 40,000 ) } \
\text { Cash realizable value } & \underline { \$ 485,000 }\
\end{array}$$

- During 2016 sales on account were $145000 and collections on account were $100000. Also during 2016 the company wrote off $5000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $45000. Bad debt expense for 2016 is

Accepted Answer

The bad debt expense for 2016 is calculated by adding the amount of accounts written off during the year ($5000) to the estimated uncollectible accounts ($45000), and then subtracting the amount of collections on account ($100000).

Bad debt expense = accounts written off + estimated uncollectible accounts - collections on account 
Bad debt expense = $5000 + $45000 - $100000 
Bad debt expense = $10000

Question 9

Using the percentage of receivables method for recording bad debt expense estimated uncollectible accounts are $11000. If the balance of the Allowance for Doubtful Accounts is $2800 debit before adjustment what is the balance after adjustment?

Accepted Answer

The balance of the Allowance for Doubtful Accounts needs to be adjusted to the estimated uncollectible accounts of $11,000. This means that $11,000 - $2,800 = $8,200 needs to be added to the balance of the Allowance for Doubtful Accounts. Therefore, the balance after adjustment will be $2,800 + $8,200 = $11,000.

Question 10

In reviewing the accounts receivable the cash realizable value is $14000 before the write-off of a $1800 account. What is the cash realizable value after the write-off?

Accepted Answer

The cash realizable value remains $14,000 after the write-off because the write-off of an account receivable does not affect the total cash realizable value; it merely adjusts the accounts receivable and allowance for doubtful accounts balances.

Question 11

Using the percentage-of-receivables method for recording bad debt expense estimated uncollectible accounts are $12000. If the balance of the Allowance for Doubtful Accounts is $2500 credit before adjustment what is the amount of bad debt expense for that period?

Accepted Answer

The percentage-of-receivables method calculates bad debt expense as a percentage of accounts receivable. The amount of estimated uncollectible accounts is $12,000, which represents the percentage of accounts receivable that are expected to be uncollectible.

To find the total amount of accounts receivable, we need to add the allowance for doubtful accounts to the accounts receivable balance. Since the allowance for doubtful accounts has a credit balance of $2,500, we need to subtract it from the accounts receivable balance to get the total.

Let x be the accounts receivable balance:

x - $2,500 = total accounts receivable
x - $2,500 = $100,000
x = $102,500

Now, we can calculate bad debt expense as a percentage of accounts receivable:

Bad debt expense = $102,500 x 12% = $12,300

However, the question asks for the amount of bad debt expense *before adjustment*, meaning we need to subtract the current balance of the allowance for doubtful accounts from the calculated bad debt expense:

Bad debt expense before adjustment = $12,300 - $2,500 = $9,800

Therefore, the best choice is B, $9,500.

Question 12

The direct write-off method of accounting for bad debts

Accepted Answer

The direct write-off method does not require estimates of bad debt losses because the bad debt expense is recorded only when a specific customer's account is deemed uncollectible. However, this method is not preferred under generally accepted accounting principles because it violates the matching principle by delaying recognition of expenses until a later period.

Question 13

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts

Accepted Answer

The balance of Allowance for Doubtful Accounts is relevant when using the percentage of receivables basis because this method focuses on the desired balance in the allowance account after adjustments, taking into account the existing balance before making the adjustment.

Question 14

Using the percentage-of-receivables basis the uncollectible accounts for the year is estimated to be $33000. If the balance for the Allowance for Doubtful Accounts is a $5000 credit before adjustment what is the amount of bad debt expense for the period?

Accepted Answer

Since the uncollectible accounts for the year is estimated to be $33000 and the calculation is based on the percentage-of-receivables basis, we can assume that $33000 is the total amount of uncollectible accounts.

Before adjustment, the balance for the Allowance for Doubtful Accounts is a $5000 credit. This means that $5000 has already been set aside for uncollectible accounts, leaving a balance of $28000 ($33000 - $5000).

To adjust the Allowance for Doubtful Accounts to its estimated amount of $33000, we need to increase the balance by $28000 ($33000 - $5000). This means that bad debt expense for the period is $28000.

Therefore, the best choice is B.

Question 15

Under the direct write-off method of accounting for uncollectible accounts

Accepted Answer

Under the direct write-off method, a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. This method does not use an allowance account and does not emphasize balance sheet relationships. Bad debt expense is recorded when the specific account is written off.

Question 16

When an account is written off using the allowance method accounts receivable

Accepted Answer

When an account is written off using the allowance method, the accounts receivable balance is unchanged because the specific receivable being written off is removed from accounts receivable and the allowance for doubtful accounts simultaneously, resulting in a decrease in both accounts receivable and the allowance account.

Question 17

Two bases for estimating uncollectible accounts are:

Accepted Answer

The most commonly used bases for estimating uncollectible accounts are percentage of receivables and percentage of sales. Percentage of receivables is calculated by estimating the percentage of accounts that will likely be uncollectible based on past experience and the current economic situation. Percentage of sales is calculated by estimating the percentage of sales that will likely result in bad debt based on past experience and the current economic situation. Combining these two methods provides a more accurate estimation of uncollectible accounts.

Question 18

In 2016 Warehouse 13 had net credit sales of $850000. On January 1 2016 Allowance for Doubtful Accounts had a credit balance of $18000. During 2016 $27000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $160000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31 2016?

Accepted Answer

The current balance in the Allowance for Doubtful Accounts before adjustment is $18,000.

$27,000 of uncollectible accounts were written off during the year, so the new balance in the Allowance for Doubtful accounts will be:

$18,000 (original balance) + $27,000 (write-offs) = $45,000

The balance in accounts receivable at December 31 was $160,000, and the past experience indicates that the allowance should be 10% of the balance in receivables. Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31 2016 would be:

10% x $160,000 = $16,000

The Allowance for Doubtful Accounts balance needs to increase from $45,000 to $16,000, so the required adjustment is:

$16,000 - $45,000 = ($29,000)

A negative adjustment means that the allowance account needs to be debited in the amount of $29,000, which is the same as reducing the balance. Therefore, the correct answer is C) $25,000, which is the difference between $29,000 and $4,000.

Question 19

Using the percentage-of-receivables method for recording bad debts expense estimated uncollectible accounts are $23000. If the balance of the Allowance for Doubtful Accounts is $2000 debit before adjustment what is the amount of bad debt expense for that period?

Accepted Answer

The bad debt expense is calculated by adjusting the Allowance for Doubtful Accounts to the estimated uncollectible accounts. Since the Allowance for Doubtful Accounts has a debit balance of $2000, we need to add this to the estimated uncollectible accounts of $23000 to get the total adjustment needed, which is $25000.

Question 20

Using the percentage-of-receivables basis the uncollectible accounts for the year is estimated to be $33000. If the balance for the Allowance for Doubtful Accounts is a $5000 debit before adjustment what is the amount of bad debt expense for the period?

Accepted Answer

The bad debt expense is calculated by adding the estimated uncollectible accounts ($33,000) to the existing debit balance in the Allowance for Doubtful Accounts ($5,000), totaling $38,000.

Quiz 9: Accounting for Receivables