Question 1

The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivable are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:
A)$110
B)$640
C)$530
D)$750

Accepted Answer

The correct amount is $750, calculated by adding the existing debit balance of $110 to the estimated uncollectible amount of $640. This ensures the Allowance for Doubtful Accounts reflects the total estimated uncollectibles.

Question 2

When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method
A)uses a percentage of sales method to estimate uncollectible accounts
B)is used primarily by large companies with many receivables
C)is used primarily by small companies with few receivables
D)uses an allowance account

Accepted Answer

The direct write-off method is typically used by small companies with few receivables because it is simpler and does not require estimation of bad debts. Large companies and those with many receivables usually use the allowance method, which involves estimating uncollectible accounts and using an allowance account to account for these estimates.

Question 3

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and bad debt expense is estimated at 3% of credit sales. If credit sales are $300,000, the amount of the adjusting entry to record the estimated uncollectible accounts receivable is
A)$8,500
B)$9,500
C)$9,000
D)Cannot be determined

Accepted Answer

To calculate the estimated amount of uncollectible accounts receivable, we need to multiply the credit sales by the estimated percentage of uncollectible accounts.

Estimated uncollectible accounts receivable = Credit sales x Estimated percentage of uncollectible accounts

Estimated uncollectible accounts receivable = $300,000 x 3% = $9,000

Since the Allowance for Doubtful Accounts currently has a credit balance of $500, we need to increase it by $9,000 to bring the balance up to the estimated amount of uncollectible accounts receivable.

Therefore, the adjusting entry will be:

Debit: Bad Debt Expense $9,000

Credit: Allowance for Doubtful Accounts $9,000

The answer is C) $9,000.

Question 4

When a company uses the allowance method of accounting for uncollectible receivables, which entry would not be found in the general journal?

Accepted Answer

The answer of When a company uses the allowance method...

Question 5

In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the amount of the adjustment when applying which method?
A)direct write-off method
B)percentage of sales method
C)analysis of receivables method
D)both percentage of sales and analysis of receivables methods

Accepted Answer

The answer of In accounting for uncollectible receivables, the balance...

Question 6

Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates the estimated amount of uncollectible accounts should be $16,000. Based on this estimate, which of the following adjusting entries should be made?
A)debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B)debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C)debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D)debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800

Accepted Answer

The adjusting entry should be based on the estimated amount of uncollectible accounts, which is $16,000. Since the Allowance for Doubtful Accounts already has a credit balance of $800, the amount that needs to be adjusted is $15,200 ($16,000 - $800). Therefore, the correct entry is to debit Bad Debt Expense for $15,200 and credit Allowance for Doubtful Accounts for $15,200.

Question 7

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include a
A)credit to Bad Debt Expense
B)debit to Bad Debt Expense
C)debit to Allowance for Doubtful Accounts
D)credit to Allowance for Doubtful Accounts

Accepted Answer

Reinstating a previously written off account means that the company has collected the amount that was previously considered as uncollectible. When a company uses the allowance method for accounting, the uncollectible accounts are estimated and recorded in a contra-asset account called Allowance for Doubtful Accounts.

To reinstate a previously written off account, the entry would include a credit to Allowance for Doubtful Accounts (to decrease the balance of the contra-asset account) and a debit to Accounts Receivable (to increase the balance of the asset account). Therefore, the correct answer is D, which is a credit to Allowance for Doubtful Accounts.

Options A and B are incorrect because they both include a debit or credit to Bad Debt Expense, which is used to record estimates of uncollectible accounts, but not for reinstating a previously written off account. Option C is incorrect because a debit to Allowance for Doubtful Accounts would increase the balance of the contra-asset account, whereas the account needs to be decreased when reinstating a written off account.

Question 8

Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a
A)credit to Bad Debt Expense
B)credit to Accounts Receivable
C)debit to Allowance for Doubtful Accounts
D)debit to Accounts Receivable

Accepted Answer

When a specific receivable that was previously written off as uncollectible is later determined to be collectible, the entry to reinstate it would include a debit to Accounts Receivable to increase the balance and reflect the collection, and a credit to Allowance for Doubtful Accounts to decrease the balance and reverse the previous write-off. There is no need to involve Bad Debt Expense in this transaction.

Question 9

Allowance for Doubtful Accounts has a debit balance of $2,300 at the end of the year (before adjustment). The company prepares an analysis of customers' accounts and estimates the amount of uncollectible accounts to be $31,900. Which of the following adjusting entries is needed to record the Bad Debt Expense for the year?
A)debit Bad Debt Expense, $34,200; credit Allowance for Doubtful Accounts, $34,200
B)debit Allowance for Doubtful Accounts, $34,200; credit Bad Debt Expense, $34,200
C)debit Allowance for Doubtful Accounts, $29,600; credit Bad Debt Expense, $29,600
D)debit Bad Debt Expense, $29,600; credit Allowance for Doubtful Accounts, $29,600

Accepted Answer

DA) The correct adjusting entry to record Bad Debt Expense involves debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. The amount is $34,200, which is the sum of the existing debit balance in the Allowance for Doubtful Accounts ($2,300) and the estimated uncollectible accounts ($31,900). This entry correctly reflects the increase in the allowance account to the desired ending balance and records the expense for the period.D) This choice is incorrect based on the explanation provided for option A. The calculation in option D does not account for the existing debit balance in the Allowance for Doubtful Accounts, leading to an incorrect adjustment amount. The correct adjustment requires neutralizing the existing debit balance and setting the allowance to the estimated uncollectible amount, totaling $34,200, not $29,600.

Question 10

Miles uses the allowance method and wrote off the account of James. Miles then received $559 as partial payment on the account of James. The journal entry to record the initial write-off includes a
A)debit to Allowance for Doubtful Accounts
B)credit to Cash
C)debit to Accounts Receivable, James
D)credit to Bad Debt Expense

Accepted Answer

The allowance method requires a write-off to be recorded when an account is deemed uncollectible. This write-off typically includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable, James. The fact that Miles received a partial payment on the account after the write-off does not change the initial entry. The entry to record the partial payment would include a debit to Cash and a credit to Accounts Receivable, James.

Question 11

Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account
A)affects only income statement accounts
B)is not an acceptable practice
C)affects only balance sheet accounts
D)affects both balance sheet and income statement accounts

Accepted Answer

Writing off an uncollectible account under the allowance method affects only balance sheet accounts, specifically the accounts receivable and the allowance for doubtful accounts, without impacting the income statement.

Question 12

Allowance for Doubtful Accounts is classified as a(n) ______ account and has a normal ______ balance.
A)stockholders' equity, credit
B)contra asset, debit
C)stockholders' equity, debit
D)contra asset, credit

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account, meaning it offsets the balance of an asset account (Accounts Receivable, in this case). Its normal balance is credit, as it reduces the total value of receivables reported on the balance sheet.

Question 13

Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of credit sales will be uncollectible. On January 1, the Allowance for Doubtful Accounts had a credit balance of $2,400. During the year, Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000. After the adjusting entry, the December 31 balance in Bad Debt Expense will be
A)$1,200
B)$3,000
C)$3,600
D)$7,200

Accepted Answer

Abbott estimates 3% of credit sales ($100,000) will be uncollectible, which equals $3,000. The beginning balance in the Allowance for Doubtful Accounts and the write-offs do not affect the Bad Debt Expense directly under the percentage of sales method. The expense is determined solely based on the current period's credit sales, hence $3,000.

Question 14

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct?
A)Uncollectible accounts are estimated to be $55,500.
B)Uncollectible accounts are estimated to be $111,000.
C)Bad debt expense is estimated to be $5,550.
D)Bad debt expense is estimated to be $11,100.

Accepted Answer

Using the percent of sales method, the estimated uncollectible accounts would be 2% of $5,550,000, which is $111,000. Therefore, option B is the correct answer. Options A and C are too low, and option D is too high.

Question 15

Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment), and bad debt expense is estimated at 4% of credit sales. If net credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts is
A)$29,500
B)$34,500
C)$32,000
D)cannot be determined

Accepted Answer

The estimated amount of uncollectible accounts is calculated by multiplying the net credit sales by the percentage of bad debt expense: 
$800,000 x 4% = $32,000

Since the Allowance for Doubtful Accounts has a debit balance of $2,500 before adjustment, we need to increase the allowance by $29,500: 
$32,000 - $2,500 = $29,500

Therefore, the adjusting entry will be a debit to Bad Debt Expense for $29,500 and a credit to Allowance for Doubtful Accounts for $29,500.

Question 16

Dalton Company uses the allowance method to account for uncollectible receivables. Dalton has determined that the Irish Company account is uncollectible. To write off this account, Dalton should debit
A)Bad Debt Expense and credit Accounts Receivable
B)Bad Debt Expense and credit Allowance for Doubtful Accounts
C)Allowance for Doubtful Accounts and credit Accounts Receivable
D)Accounts Receivable and credit Allowance for Doubtful Accounts

Accepted Answer

When using the allowance method, writing off an uncollectible account involves debiting Allowance for Doubtful Accounts and crediting Accounts Receivable, which removes the amount from the accounts receivable balance without affecting the income statement at the time of the write-off.

Question 17

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct regarding the entry to record estimated uncollectible receivables?
A)Cash will be debited
B)Bad Debt Expense will be credited
C)Allowance for Doubtful Accounts will be credited
D)Accounts Receivable will be debited

Accepted Answer

The percent of sales method involves estimating the amount of uncollectible accounts based on a percentage of credit sales. The estimated amount is then recorded by crediting the Allowance for Doubtful Accounts. Therefore, the correct choice is C. None of the other accounts mentioned (Cash, Bad Debt Expense, and Accounts Receivable) are involved in the estimation of uncollectible accounts using the percent of sales method.

Question 18

Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before adjustment). The company prepares an analysis of customers' accounts to estimate the amount of uncollectible accounts of $41,900. Which of the following adjusting entries would be made to record the Bad Debt Expense for the year?
A)debit Allowance for Doubtful Accounts, $40,600; credit Bad Debt Expense, $40,600
B)debit Allowance for Doubtful Accounts, $43,200; credit Bad Debt Expense, $43,200
C)debit Bad Debt Expense, $43,200; credit Allowance for Doubtful Accounts, $43,200
D)debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600

Accepted Answer

The correct adjusting entry is to debit Bad Debt Expense and credit Allowance for Doubtful Accounts for the difference between the desired ending balance ($41,900) and the current credit balance ($1,300), which is $40,600 ($41,900 - $1,300).

Question 19

A company uses the allowance method to account for uncollectible accounts receivable. When the firm writes off a specific customer's account receivable
A)total current assets are reduced
B)total expenses for the period are increased
C)net realizable value of accounts receivable increases
D)there is no effect on total current assets or total expenses

Accepted Answer

When a company writes off a specific customer's account receivable under the allowance method, it does not affect total current assets or total expenses. This is because the expense was already recognized when the allowance for doubtful accounts was established, and the write-off merely adjusts the accounts receivable and allowance accounts without impacting the overall financial position.

Question 20

At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year, $120 of previously written off accounts are reinstated and accounts totaling $740 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be
A)$760
B)$120
C)$140
D)$740

Accepted Answer

The beginning balance of Allowance for Doubtful Accounts is a credit of $760.
$120 of previously written off accounts are reinstated, which increases the Accounts Receivable by $120, but does not affect the Allowance for Doubtful Accounts balance.
Accounts totaling $740 are written off as uncollectible, which decreases the Accounts Receivable balance by $740 and the Allowance for Doubtful Accounts needs to be increased accordingly.
So, the end-of-year balance in the Allowance for Doubtful Accounts should be ($760 - $120 + $740 = ) $1,380. However, the question is asking for the balance before adjustment, so we need to subtract the $120 of reinstated accounts from $1,380, which gives us a balance of $1,260. Finally, since the beginning balance was a credit of $760, we need to subtract $1,260 from $760, which gives us a balance of ($760 - $1,260 = ) -$500. Since this is a negative balance, we need to flip the sign and express it as a credit balance of $500. Therefore, the best choice is C) $140.

Quiz 8: Receivables

When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment) , and bad debt expense is estimated at 3% of credit sales. If credit sales are $300,000, the amount of the adjusting entry to record the estimated uncollectible accounts receivable is

When a company uses the allowance method of accounting for uncollectible receivables, which entry would not be found in the general journal?

In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the amount of the adjustment when applying which method?

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include a

Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a

Miles uses the allowance method and wrote off the account of James. Miles then received $559 as partial payment on the account of James. The journal entry to record the initial write-off includes a

Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account

Allowance for Doubtful Accounts is classified as a(n) account and has a normal balance.

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct?

Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment) , and bad debt expense is estimated at 4% of credit sales. If net credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts is

Dalton Company uses the allowance method to account for uncollectible receivables. Dalton has determined that the Irish Company account is uncollectible. To write off this account, Dalton should debit

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct regarding the entry to record estimated uncollectible receivables?

A company uses the allowance method to account for uncollectible accounts receivable. When the firm writes off a specific customer's account receivable