Question 1

After the December 31, 2019 adjusting journal entries have been posted, Tri-State Distributors has the following account balances (all accounts have normal balances) are:
 $$\begin{array} { | l | r | } 
\hline \text { Account Title } & \text { Account Balance } \
\hline \text { Accounts Receivable } & \$ 240,000 \
\hline \text { Allowance for Bad Debts } & \$ 12,500 \
\hline \text { Bad Debts Expense } & \$ 14,500 \
\hline
\end{array}$$ Use this information to prepare, in good form, the Balance Sheet (partial) on December, 31, 2019. Include a proper heading.

Accepted Answer

The answer of After the December 31, 2019 adjusting journal...

Question 2

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 the accounts receivable and the allowance for doubtful accounts. Since the expense was recognized when the allowance was initially created, this write-off does not affect the income statement or net income.

Question 3

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 a company uses the allowance method, it records Bad Debt Expense as an adjusting entry at the end of the period based on an estimate of potential uncollectible accounts. Therefore, when the company writes off a specific account receivable, it has already accounted for the potential loss through the adjusting entry and does not need to debit Bad Debt Expense again.

Question 4

Which of the following is true of the balance sheet presentation of the Allowance for Bad Debts?

Accepted Answer

The Allowance for Bad Debts is shown as a contra account related to accounts receivable on the balance sheet. This means that it is subtracted from the total amount of accounts receivable to show the estimated amount of receivables that the company does not expect to collect. This presentation allows for a more accurate representation of the true value of accounts receivable.

Question 5

Accounts Receivable has a balance of $32,000, and the Allowance for Bad Debts has a credit balance of $3,000. The allowance method is used. What is the net realizable value of Accounts Receivable before and after a $2,100 account receivable is written off?

Accepted Answer

Writing off an account receivable under the allowance method does not change the net realizable value of accounts receivable. Before the write-off, the net realizable value is Accounts Receivable ($32,000) minus Allowance for Bad Debts ($3,000), which equals $29,000. After the write-off, the specific receivable and the allowance decrease by the same amount, leaving the net realizable value unchanged at $29,000.

Question 6

After the December 31, 2019 adjusting journal entries have been posted, Sinclair Enterprises has the following account balances (all accounts have normal balances) are: $$\begin{array} { | l | r | } 
\hline \text { Account Title } & \text { Account Balance } \
\hline \text { Accounts Receivable } & \$ 159,000 \
\hline \text { Allowance for Bad Debts } & \$ 4,600 \
\hline \text { Bad Debts Expense } & \$ 8,200 \
\hline
\end{array}$$ What is the net realizable value as of December 21, 2019?

Accepted Answer

The net realizable value of accounts receivable is calculated by subtracting the allowance for bad debts from the accounts receivable balance. Therefore, $159,000 - $4,600 = $154,400.

Question 7

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

Accepted Answer

The answer of Jayson Enterprises uses the allowance method to...

Question 8

When a company uses the allowance method to measure bad debts, ________.

Accepted Answer

When a company uses the allowance method to measure bad debts, the amount of bad debts expense is estimated at the end of the accounting period based on an analysis of the accounts receivable. The Bad Debts Expense account is then debited for the estimated amount and the Allowance for Bad Debts account is credited. The normal balance in the Allowance for Bad Debts account is a credit, and it represents the amount of potential bad debts that has been set aside by the company. When an account is deemed uncollectible and is written off, the Allowance for Bad Debts account is debited and the Accounts Receivable account is credited, but the Bad Debts Expense account is not affected.

Question 9

To report accounts receivable at the appropriate amount on the balance sheet, a company determines an accurate estimate of uncollectible accounts and recognizes the associated bad debt expense.

Accepted Answer

This statement is true. To properly report accounts receivable, a company must estimate the amount that will not be collected (uncollectible accounts) and recognize this as bad debt expense on the income statement. This helps ensure that accounts receivable is reported at its net realizable value (the amount the company expects to ultimately collect).

Question 10

On January 16, Half Circle, Inc. sold $5,000 of merchandise to Arnold, on account. Half Circle could not collect cash from Arnold and wrote off the account. Prepare a journal entry to record the write-off, assuming Half Circle uses the allowance method. Omit explanation.

Accepted Answer

The answer of On January 16, Half Circle, Inc. sold...

Question 11

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

Accepted Answer

When an account receivable is written off, the Allowance for Bad Debts account is credited, reducing the amount of the allowance. This is offset by a debit to the Accounts Receivable account, effectively removing the bad debt from the company's books.

Question 12

The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts Expense from Accounts Receivable.

Accepted Answer

The net realizable value of Accounts Receivable is calculated by subtracting the Allowance for Doubtful Accounts from Accounts Receivable. Bad Debts Expense is used to calculate the Allowance for Doubtful Accounts.

Question 13

Under the allowance method, the entry to write off a receivable increases the amount of the Allowance for Bad Debts account.

Accepted Answer

Under the allowance method, the entry to write off a receivable decreases the Allowance for Bad Debts account, not increases it.

Question 14

Accounts Receivable has a balance of $8,000, and the Allowance for Bad Debts has a credit balance of $450. The allowance method is used. What is the net realizable value of Accounts Receivable after a $160 account receivable is written off?

Accepted Answer

The answer of Accounts Receivable has a balance of $8,000,...

Question 15

The entry to write off an account under the allowance method affects net income at the time of entry.

Accepted Answer

The entry to write off an account under the allowance method does not affect net income because it involves only a reduction in accounts receivable and a corresponding reduction in the allowance for doubtful accounts, both of which are balance sheet accounts.

Question 16

When using the allowance method to account for uncollectible accounts receivable, companies estimate bad debt expense at the end of the period and then record an adjusting entry.

Accepted Answer

The statement is true. The allowance method involves estimating bad debt expense and recording an adjusting entry at the end of the period based on the estimated amount of uncollectible accounts receivable.

Question 17

When accounting for uncollectible accounts under IFRS, the allowance method is used to accomplish the matching of bad debt expense to the sales of the period but not to report receivables at net realizable value.

Accepted Answer

Under IFRS, the allowance method is used to report receivables at net realizable value by deducting the estimated uncollectible amount from the total receivables. This accomplishes both the matching of bad debt expense to the sales of the period and reporting receivables at net realizable value.

Question 18

When using the allowance method, the write-off of a receivable ________.

Accepted Answer

Using the allowance method, the write-off of a receivable reduces the amount of the Allowance for Bad Debts account. This is because the allowance method involves estimating the amount of uncollectible accounts and creating a contra-asset account, Allowance for Bad Debts, to reduce the accounts receivable to its net realizable value. When a receivable is no longer collectible, it is written off as a bad debt, and the Allowance for Bad Debts account is reduced to reflect the write-off. This reduces the net realizable value of accounts receivable, but does not affect net income.

Question 19

The Allowance for Bad Debts account ________.

Accepted Answer

The Allowance for Bad Debts account holds the estimated amount of uncollectible accounts receivable, referred to as the "pool of unknown" uncollectible accounts. This account is a contra-asset account, meaning it reduces the balance of accounts receivable, and therefore has a credit balance. It is increased with a credit entry when bad debt expense is recognized.

Question 20

A company reports net accounts receivable of $152,000 on its December 31, 2019 balance sheet. The Allowance for Bad Debts has a credit balance of $19,000. What is the balance of Accounts Receivable?

Accepted Answer

The balance of Accounts Receivable before adjusting for the Allowance for Bad Debts is found by adding the net accounts receivable ($152,000) and the Allowance for Bad Debts ($19,000), which equals $171,000. This is because the Allowance for Bad Debts is a contra asset account that reduces the total Accounts Receivable to its net realizable value.

Quiz 8: Receivables