Question 1

The net amount expected to be received in cash from receivables is termed the

Accepted Answer

The cash realizable value is the net amount expected to be received in cash from receivables after considering any potential bad debts or discounts offered. It is calculated by subtracting the estimated uncollectible amount from the total accounts receivable balance.

Question 2

Two methods of accounting for uncollectible accounts are the

Accepted Answer

The two methods of accounting for uncollectible accounts are the direct write-off method and the allowance method. The direct write-off method is when bad debt expenses are recorded when a debt is deemed uncollectible and written off. The allowance method is when a certain amount of the accounts receivable is estimated to be uncollectible and is recorded as an allowance for doubtful accounts. Of the given options, only option D includes both the direct write-off and allowance methods.

Question 3

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 expense at the time of write-off. This method does not emphasize balance sheet relationships and bad debt expense is not recorded in the period in which the revenue was recorded.

Question 4

Jack Company provides for bad debt expense at the rate of 2% of accounts receivable.The following data are available for 2021:  The Allowance for Doubtful Accounts balance at December 31, 2021, should be

Accepted Answer

To find the Allowance for Doubtful Accounts balance at December 31, 2021, we need to calculate the bad debt expense for the year and subtract any previous balance in the allowance account.

First, we need to calculate the 2% of accounts receivable for the year:

2% x $1,200,000 = $24,000

So the bad debt expense for the year is $24,000.

Next, we need to subtract any previous balance in the Allowance for Doubtful Accounts account. The question doesn't provide this information, so we assume that there was no previous balance.

Therefore, the ending balance in the Allowance for Doubtful Accounts account should be $24,000.

Therefore, the correct answer is D) $24,000.

Question 5

When customers make purchases with a national credit card, the retailer

Accepted Answer

Retailers are not involved in the collection process when customers use a national credit card; this responsibility falls to the credit card company.

Question 6

On November 1, Gentle Company received a $3,000, 6%, three-month note receivable. The cash to be received by Gentle Company when the note becomes due is:

Accepted Answer

The answer of On November 1, Gentle Company received a...

Question 7

The average collection period is computed by dividing

Accepted Answer

The formula for average collection period is 365 days divided by the accounts receivable turnover. This calculation gives the average number of days it takes to collect on credit sales. Therefore, the correct option is D, which represents 365 days divided by the accounts receivable turnover.

Question 8

Which of the following statements concerning receivables is incorrect?

Accepted Answer

Notes receivable can be listed either first or last under receivables depending on the company's preference or the level of importance they assign to notes receivable.

Question 9

Determine the interest on the following notes:

Accepted Answer

The answer of Determine the interest on the following notes:...

Question 10

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

Accepted Answer

When using the allowance method, the write-off of an uncollectible account involves only balance sheet accounts since the allowance for doubtful accounts (a contra-asset account) has already been established to account for potential losses. The entry will decrease the accounts receivable account (asset) and the allowance for doubtful accounts account (contra-asset).

Question 11

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts.

Accepted Answer

While retailers do need to maintain basic transaction records for Visa and other credit card purchases, they do not need to keep detailed records of individual customer accounts. The responsibility for maintaining and managing individual credit card accounts rests with the credit card issuer and the cardholder.

Question 12

The receivable that is usually evidenced by a formal instrument of credit is a(n)

Accepted Answer

A formal instrument of credit refers to a written promise to pay, such as a promissory note. Therefore, the receivable in question is a note receivable, not a trade receivable (which does not require a formal instrument), accounts receivable (which may or may not have a formal instrument), or income tax receivable (which is a completely different type of receivable related to taxes).

Question 13

If a company fails to record estimated bad debt expense,

Accepted Answer

If a company fails to record estimated bad debt expense, expenses are understated because the company is not recognizing the cost associated with potential uncollectible accounts.

Question 14

The allowance method of accounting for uncollectible accounts is required by GAAP if

Accepted Answer

The allowance method is required by GAAP when bad debts are significant in amount because it provides a more accurate reflection of the net realizable value of accounts receivable on the balance sheet. This method involves estimating uncollectible accounts at the end of each period and adjusting the allowance for doubtful accounts accordingly, ensuring that expenses are matched with the revenues they helped generate.

Question 15

An aging of a company's accounts receivable indicates that $5,000 is estimated to be uncollectible.If Allowance for Doubtful Accounts has a $900 credit balance, the adjustment to record bad debts for the period will require a

Accepted Answer

The adjustment to record bad debts for the period should be equal to the estimated uncollectible amount of $5,000 minus the current credit balance in the Allowance for Doubtful Accounts of $900, which equals $4,100. Therefore, a debit of $4,100 should be made to Bad Debt Expense.

Question 16

In 2021, Boyle Company had credit sales of $900,000.On January 1, 2021, Allowance for Doubtful Accounts had a credit balance of $22,500.During 2021, $36,000 of uncollectible accounts receivable were written off.Past experience indicates that the allowance balance should be 10% of the accounts receivable become uncollectible.What should be the required adjustment to the Allowance for Doubtful Accounts at December 31, 2021, if the ending accounts receivable balance was $240,000?

Accepted Answer

First, we need to calculate the required balance for the Allowance for Doubtful Accounts based on past experience:

Accounts Receivable at December 31, 2021 = $240,000 
Required Allowance Balance = 10% of $240,000 = $24,000

Next, we need to adjust the current balance in the Allowance for Doubtful Accounts:

Beginning Allowance Balance (January 1, 2021) = $22,500 
Add: Required Adjustment = $24,000 
Subtract: Amount of Accounts Written Off = $36,000

Adjusted Allowance Balance (December 31, 2021) = $10,500

To get the required adjustment, we need to solve for the difference between the adjusted and current allowance balances:

Required Adjustment = Adjusted Allowance Balance - Beginning Allowance Balance + Amount of Accounts Written Off 
Required Adjustment = $10,500 - $22,500 + $36,000 
Required Adjustment = $24,000

Therefore, the answer is A) $37,500.

Question 17

A retailer considers Visa and MasterCard sales as

Accepted Answer

Visa and MasterCard sales are considered cash sales by retailers because the funds are typically received quickly, often within a few days, similar to cash transactions.

Question 18

On January 15, 2021, Craig Company received a two-month, 9%, $9,000 note from William Pentel for the settlement of his open account.The entry by Craig Company on January 15, 2021, would include a:

Accepted Answer

The entry by Craig Company on January 15, 2021, would include a debit of $9,000 to Notes Receivable. This is because the note is being received by Craig Company, and therefore represents an increase in their assets (specifically, their notes receivable). The amount of the note is $9,000, which is the amount that will be recorded on the debit side of the entry. The interest of 9% ($810) will be recorded separately as interest revenue over the two months of the note's term. There is no need for a credit to accounts receivable or notes receivable, as these do not decrease as a result of this transaction.

Question 19

The financial statements of Danielle Manufacturing Company report net sales of $750,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of the year, respectively.What is the accounts receivable turnover for Danielle?

Accepted Answer

The answer of The financial statements of Danielle Manufacturing Company...

Question 20

The accounts receivable turnover is computed by dividing

Accepted Answer

The accounts receivable turnover ratio measures the number of times a company collects its average accounts receivable balance during a given period. The formula for calculating the accounts receivable turnover ratio is net credit sales divided by average net accounts receivable. Therefore, the best answer choice is B, which divides net credit sales by average net accounts receivable.

Quiz 8: Accounting for Receivables