Question 1

Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off.

Accepted Answer

Under the allowance method, Bad Debt Expense is debited at the time of estimating future bad debts, and the specific customer account is debited against the allowance for doubtful accounts when it is deemed uncollectible and written off, not against Bad Debt Expense.

Question 2

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt.

Accepted Answer

Notes receivable are formal instruments of credit that serve as evidence of debt.

Question 3

Three accounting issues associated with accounts receivable are

Accepted Answer

The three main accounting issues with accounts receivable are recognizing (recording the receivables), valuing (estimating the collectability and adjusting for bad debts), and disposing (writing off uncollectible accounts).

Question 4

The cash realizable value is the difference between the

Accepted Answer

The cash realizable value is the amount of accounts receivable that is expected to be collected. It is calculated by subtracting the allowance for doubtful accounts balance from the accounts receivable balance. This represents the amount of money the company expects to receive in cash for its sales, after accounting for any customers who are unlikely to pay. Option B is incorrect because net sales is a measure of revenue, not cash collected. Option C is incorrect because bad debt expense is an estimate of uncollectible accounts, not a measure of cash collected. Option D is incorrect because bad debt expense is not included in the calculation of the cash realizable value.

Question 5

When an account is written off using the allowance method, the

Accepted Answer

When an account is written off using the allowance method, the cash realizable value of accounts receivable remains the same because the allowance for doubtful accounts has already accounted for the potential loss from uncollectible accounts. The write-off reduces both the accounts receivable and the allowance for doubtful accounts by the same amount, leaving the net cash realizable value unchanged.

Question 6

In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-off of a $1,500 account.What is the cash realizable value after the write-off?

Accepted Answer

The cash realizable value remains $16,000 after the write-off of a $1,500 account because the write-off does not affect the total cash expected to be collected; it merely adjusts the accounts receivable and allowance for doubtful accounts.

Question 7

Major advantages of credit cards to the retailer include all of the following except the

Accepted Answer

The retailer does not receive more cash from the credit card issuer. In fact, the credit card issuer will charge the retailer a fee for each transaction processed through the credit card network. However, the other statements are true advantages of credit cards for retailers.

Question 8

Which of the following is not true regarding a promissory note?

Accepted Answer

Promissory notes can be transferred to another party by endorsement.

Question 9

When a note is accepted to settle an open account, Notes Receivable is debited for the note's

Accepted Answer

When a note is accepted to settle an open account, the Notes Receivable account is debited for the face value of the note. The face value of the note is the amount written on the note that the maker promises to pay. The interest that will be earned on the note is recorded separately as interest revenue. The net realizable value of the note may be different from the face value if there are concerns about the maker's ability to pay or if the note has been discounted. The maturity value is the face value plus any interest that has accumulated at the maturity date, so it is not relevant when the note is accepted.

Question 10

When the allowance method of recognizing bad debt expense is used, the entry to recognize that expense

Accepted Answer

The allowance method of recognizing bad debt expense involves creating an allowance account to estimate and record the amount of bad debt expected to occur. This allowance account is a contra-asset account and is deducted from the amount of accounts receivable on the balance sheet. As the allowance account is increased, the net amount of accounts receivable decreases, so this method decreases current assets. The expense recognized under this method has no direct effect on net income until it is eventually written off.

Question 11

Which board(s) has(have) faced strong opposition when working to implement fair value measurement for financial instruments?

Accepted Answer

Both FASB and IASB have faced strong opposition when working to implement fair value measurement for financial instruments. Fair value measurement has been a contentious issue in the accounting industry, with some arguing that it is too subjective and can lead to volatility in financial statements. As a result, both FASB and IASB have faced opposition from various stakeholders, including companies, investors, and regulators, when attempting to implement fair value measurement standards.

Question 12

Prepare journal entries to record the following transactions entered into by Valente Company:

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 13

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.

Accepted Answer

The cash realizable value of receivables is the total amount of receivables less the estimated allowance for uncollectible accounts. When an account is written off, the allowance is adjusted for the amount of the write-off, reducing the total amount of receivables and the estimated allowance by the same amount. Therefore, the cash realizable value of receivables remains the same before and after an account has been written off.

Question 14

The Allowance for Doubtful Accounts is a liability account.

Accepted Answer

The Allowance for Doubtful Accounts is a contra-asset account, not a liability account. It is used to offset the Accounts Receivable account and reflects the estimated amount of uncollectible accounts.

Question 15

Which of the following would require a compound journal entry?

Accepted Answer

A compound journal entry is needed when multiple accounts are affected. In this case, accounts receivable, sales discount, and cash accounts are involved.

Question 16

An aging of a company's accounts receivable indicates that $14,000 are estimated to be uncollectible.If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a

Accepted Answer

Since the aging of accounts receivable indicates that $14,000 are estimated to be uncollectible, the company needs to record this as an expense through Bad Debt Expense. However, before doing so, the company needs to adjust its Allowance for Doubtful Accounts to reflect the estimated loss. Since the Allowance for Doubtful Accounts currently has a credit balance of $1,100, the adjustment would require a debit to increase the balance. The amount of the debit would be the difference between the estimated loss ($14,000) and the current credit balance ($1,100), which is $12,900. Therefore, the correct answer is C - debit to Bad Debt Expense for $12,900.

Question 17

If an account is collected after having been previously written off,

Accepted Answer

When an account previously written off is collected, accounts receivable is debited to reinstate the account, and cash is credited when the payment is received.

Question 18

In 2021, Warehouse 13 had net credit sales of $750,000.On January 1, 2021, Allowance for Doubtful Accounts had a credit balance of $16,000.During 2021, $29,000 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 $150,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2021?

Accepted Answer

The required adjustment to the Allowance for Doubtful Accounts at December 31, 2021 is computed as follows:

10% * $150,000 = $15,000 (required ending balance for allowance)
$15,000 - $16,000 = ($1,000) (current credit balance)
$1,000 + $29,000 = $28,000 (required adjustment to allowance)

Therefore, the correct answer is C) $28,000.

Question 19

The sale of receivables by a business

Accepted Answer

Selling receivables can provide a business with quick access to cash without having to wait for customers to pay their invoices. This can be particularly helpful for meeting operating expenses or investing in growth opportunities. It does not necessarily indicate financial difficulty or ownership by a factor, and it may or may not be a major revenue item on the income statement.

Question 20

The two key parties to a promissory note are the

Accepted Answer

The maker and the payee are the two key parties to a promissory note. The maker is the person who signs the note and promises to pay a certain amount of money to the payee on a specific date, while the payee is the person who will receive the payment. The debtor is the person who owes the money and may or may not be the same as the maker. The bank can also be involved in the process if the promissory note is being used as collateral for a loan, but it is not a necessary party to the note itself. The sender and receiver are not applicable terms in this context.

Quiz 8: Accounting for Receivables