Question 1

If the direct write-off method of accounting for uncollectible receivables is used,what general ledger account is credited to write off a customer's account as uncollectible?

Accepted Answer

When using the direct write-off method, the specific customer's account is directly credited and Accounts Receivable is reduced. There is no separate allowance or expense account involved in this method.

Question 2

An aging of a company's accounts receivable indicates that the estimate of uncollectible receivables totals $7,900.If Allowance for Doubtful Accounts has a $700 credit balance,the adjustment to record the bad debt expense for the period will require a

Accepted Answer

The adjustment to record the bad debt expense should bring the Allowance for Doubtful Accounts to the new estimated total of uncollectible receivables, which is $7,900. Since there is already a $700 credit balance in the account, an additional $7,200 (i.e., $7,900 - $700) needs to be added to reach the new total. This is done by debiting Bad Debt Expense for $7,200 and crediting Allowance for Doubtful Accounts for the same amount.

Question 3

After the accounts are adjusted and closed at the end of the fiscal year,Accounts Receivable has a balance of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000.What is the net realizable value of accounts receivable?

Accepted Answer

The net realizable value of accounts receivable can be calculated by subtracting the balance of Allowance for Doubtful Accounts from the balance of Accounts Receivable. 
Net Realizable Value = Accounts Receivable - Allowance for Doubtful Accounts
Net Realizable Value = $340,000 - $51,000
Net Realizable Value = $289,000. Therefore, the correct answer is Option B.

Question 4

The balance in Allowance for Doubtful Accounts will directly impact the end-of-period adjustment for bad debt expense when using the

Accepted Answer

The allowance method based on aging the receivables requires an end-of-period adjustment for bad debt expense, which is based on the balance in the Allowance for Doubtful Accounts. The other methods, direct write-off, accrual, and declining value, do not rely on an allowance account and therefore do not require an end-of-period adjustment based on its balance.

Question 5

What is the type of account and normal balance of Allowance for Doubtful Accounts?

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account that offset the Accounts Receivable account, and its normal balance is a credit.

Question 6

An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $6,400.If Allowance for Doubtful Accounts has a $1,300 debit balance,the adjustment to record the bad debt expense for the period will require a

Accepted Answer

The adjustment to record the bad debt expense needs to increase the Allowance for Doubtful Accounts to the estimated total of $6,400. Since there's already a $1,300 debit balance in the account, the total adjustment needs to be $7,700 ($6,400 needed - (-$1,300 existing debit balance)) to both cover the existing debit balance and reach the new estimated total. This is done by debiting Bad Debt Expense for $7,700 and crediting Allowance for Doubtful Accounts for the same amount.

Question 7

Under the allowance method,when a year-end adjustment is made for estimated uncollectible accounts

Accepted Answer

When a year-end adjustment is made for estimated uncollectible accounts, the allowance for doubtful accounts is increased and, as a result, the total assets decrease. This is because the allowance for doubtful accounts is a contra-asset account, which reduces the overall value of accounts receivable.

Question 8

To record estimated uncollectible receivables using the allowance method,the adjusting entry would be a

Accepted Answer

Under the allowance method, the estimated uncollectible receivables are recorded by debiting the Bad Debt Expense account and crediting the Allowance for Doubtful Accounts. This is because the Bad Debt Expense represents the expense incurred in the current period for potential uncollectible accounts, while the Allowance for Doubtful Accounts is a contra-asset account that reduces the balance of Accounts Receivable to its net realizable value. Option B is incorrect because it would increase the balance of Accounts Receivable, which is not reflective of the fact that certain accounts are not expected to be collected. Option C is incorrect because it would decrease the balance of Accounts Receivable, which does not reflect the true value of the accounts that are expected to be collected. Option D is incorrect because it does not reflect the true nature of the expense incurred or the reduction in the value of accounts receivable.

Question 9

Lowery Co.uses the direct write-off method of accounting for uncollectible accounts receivable.Lowery has a customer whose accounts receivable balance has been determined to likely be uncollectible.The entry to write off this account would be

Accepted Answer

The direct write-off method involves directly writing off the uncollectible account from Accounts Receivable. Therefore, the entry to write off the account would be to debit Bad Debt Expense and credit Accounts Receivable. Option A is incorrect because it involves the use of an allowance account, which is not used in the direct write-off method. Option B is incorrect because it involves replacing Accounts Receivable with Notes Receivable, which is not applicable in this scenario. Option C involves crediting the allowance account, which is not used in the direct write-off method.

Question 10

If the allowance method of accounting for uncollectible receivables is used,what general ledger account is credited to write off a customer's account as uncollectible?

Accepted Answer

The answer of If the allowance method of accounting for...

Question 11

One of the weaknesses of the direct write-off method is that it

Accepted Answer

The direct write-off method violates the matching principle because it does not match the recognition of bad debts expense with the period in which the related credit sales were made. Instead, bad debts expense is only recognized when the specific receivable is actually written off. This can distort the company's financial statements and make it difficult to compare performance across different reporting periods.

Question 12

If the direct write-off method of accounting for uncollectible receivables is used,what general ledger account is debited to write off a customer's account as uncollectible?

Accepted Answer

Under the direct write-off method, when an account is deemed uncollectible, the Bad Debt Expense account is debited to recognize the expense associated with the uncollectible account.

Question 13

If the allowance method of accounting for uncollectible receivables is used,what general ledger account is debited to write off a customer's account as uncollectible?

Accepted Answer

The Allowance for Doubtful Accounts is debited when writing off a customer's account as uncollectible under the allowance method, offsetting the specific accounts receivable balance.

Question 14

When the allowance method is used to account for uncollectible accounts,Bad Debt Expense is debited when

Accepted Answer

According to the allowance method, Bad Debt Expense is debited when management estimates the amount of uncollectibles. This is because the allowance for doubtful accounts is a contra asset account that is credited instead of directly reducing the accounts receivable balance. The estimation of the allowance is based on historical data, current economic conditions, and other relevant factors. Therefore, choice D is the best answer.

Question 15

On the balance sheet,the amount shown for Allowance for Doubtful Accounts is equal to the

Accepted Answer

Allowance for Doubtful Accounts is a contra-asset account that represents the estimated amount of accounts receivable that are unlikely to be collected. This amount is based on a company's historical collection experience and other factors like economic conditions. Therefore, the amount shown for Allowance for Doubtful Accounts is equal to the total estimated uncollectible accounts as of the end of the year. It is not directly related to the uncollectible accounts expense for the year (A), accounts receivable written off during the year (B), or the sum of all accounts that are past due (D).

Question 16

Indications that an account may be uncollectible include all of the following except the customer

Accepted Answer

The fact that a customer is making small but regular payments indicates that there is still some level of commitment to pay the debt, and therefore it is not an indication that the account may be uncollectible. The other options, such as the customer closing its business, filing for bankruptcy, or being unable to be located, are all potential indications that the account may be uncollectible.

Question 17

Tanning Company analyzes its receivables to estimate bad debt expense.The accounts receivable balance is $390,000 and credit sales are $1,300,000.An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible.What adjusting entry will Tanning Company make if Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?

Accepted Answer

The estimated uncollectible amount is 5% of $390,000, which is $19,500. Since there is already a credit balance of $2,500 in the Allowance for Doubtful Accounts, the adjusting entry should be for the difference, which is $17,000.

Question 18

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments.Assuming you use the allowance method,the entry you make is to

Accepted Answer

Using the allowance method, the company establishes an Allowance for Doubtful Accounts which is a contra-asset account. The entry to write-off the account of the bankrupt customer is to debit Allowance for Doubtful Accounts (reducing the balance of the account) and credit Accounts Receivable (removing the amount from the balance sheet). Debiting Bad Debt Expense would be appropriate if the company had not established an allowance account, but since it has, the entry should credit the allowance account. Debiting Accounts Receivable and crediting Bad Debt Expense would be incorrect because the company is not reducing its receivables due to a bad debt expense, it is only removing the specific balance owed by the bankrupt customer.

Question 19

Selling receivables

Accepted Answer

Selling receivables shifts some of the risk of non-payment to the buyer, which can be beneficial for the seller. It does not necessarily delay the receipt of cash, result in bad debt expense, or occur only when an account becomes uncollectible.

Question 20

A debit balance in Allowance for Doubtful Accounts

Accepted Answer

A debit balance in Allowance for Doubtful Accounts indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. This means that the company estimated a certain amount of bad debts and made provisions for it, but the actual write-offs exceeded that amount. As a result, the balance is now a debit because the company needs to increase the allowance to cover the additional bad debts.

Quiz 9: Receivables