Question 1

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Accepted Answer

A) True 
 B)False

Question 2

Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note?

Accepted Answer

The answer of Rosen Company receives a $9,000, 3-month, 6%...

Question 3

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

Accepted Answer

A) is unchanged and the allowance account increases. 
B) increases and the allowance account increases. 
C) decreases and the allowance account decreases. 
D) decreases and the allowance account increases. 
A) is unchanged and the allowance account increases. 
B) increases and the allowance account increases. 
C) decreases and the allowance account decreases. 
D) decreases and the allowance account increases.

Question 4

The expense recognition

Accepted Answer

A) requires that all credit losses be recorded when an individual customer cannot pay. 
B) necessitates the recording of an estimated amount for bad debts. 
C) results in the recording of a known amount for bad debt losses. 
D) is not involved in the decision of when to expense a credit loss. 
A) requires that all credit losses be recorded when an individual customer cannot pay. 
B) necessitates the recording of an estimated amount for bad debts. 
C) results in the recording of a known amount for bad debt losses. 
D) is not involved in the decision of when to expense a credit loss.

Question 5

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record Bad Debt Expense

Accepted Answer

A) is relevant when using the percentage-of-receivables basis. 
B) is relevant when using the direct write-off method. 
C) is relevant to both the percentage-of-receivables basis and the direct write-off method. 
D) will never show a debit balance at this stage in the accounting cycle. 
A) is relevant when using the percentage-of-receivables basis. 
B) is relevant when using the direct write-off method. 
C) is relevant to both the percentage-of-receivables basis and the direct write-off method. 
D) will never show a debit balance at this stage in the accounting cycle.

Question 6

The two key parties to a promissory note are the

Accepted Answer

A) maker and a bank. 
B) debtor and the payee. 
C) maker and the payee. 
D) sender and the receiver. 
A) maker and a bank. 
B) debtor and the payee. 
C) maker and the payee. 
D) sender and the receiver.

Question 7

The allowance method of accounting for uncollectible accounts is required if

Accepted Answer

A) the company makes any credit sales. 
B) bad debts are significant in amount. 
C) the company is a retailer. 
D) the company charges interest on accounts receivable. 
A) the company makes any credit sales. 
B) bad debts are significant in amount. 
C) the company is a retailer. 
D) the company charges interest on accounts receivable.

Question 8

An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3,200 debit balance, the adjustment to record bad debts for the period will require a

Accepted Answer

A) debit to Bad Debt Expense for $9,000. 
B) debit to Bad Debt Expense for $12,200. 
C) debit to Bad Debt Expense for $5,800. 
D) credit to Allowance for Doubtful Accounts for $9,000. 
A) debit to Bad Debt Expense for $9,000. 
B) debit to Bad Debt Expense for $12,200. 
C) debit to Bad Debt Expense for $5,800. 
D) credit to Allowance for Doubtful Accounts for $9,000.

Question 9

On January 15, Nifty Company sells merchandise on account to Martinez Associates for $5,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $1,000 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

Accepted Answer

A) $4,000 
B) $3,880 
C) $3,850 
D) $2,800 
A) $4,000 
B) $3,880 
C) $3,850 
D) $2,800

Question 10

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

A) True 
 B)False

Question 11

Under the allowance method, Bad Debt Expense is recorded

Accepted Answer

A) when an individual account is written off. 
B) when the loss amount is known. 
C) for an amount that the company estimates it will not collect. 
D) several times during the accounting period. 
A) when an individual account is written off. 
B) when the loss amount is known. 
C) for an amount that the company estimates it will not collect. 
D) several times during the accounting period.

Question 12

An alternative name for Bad Debt Expense is

Accepted Answer

A) Deadbeat Expense. 
B) Uncollectible Accounts Expense. 
C) Collection Expense. 
D) Credit Loss Expense. 
A) Deadbeat Expense. 
B) Uncollectible Accounts Expense. 
C) Collection Expense. 
D) Credit Loss Expense.

Question 13

Under the allowance method, when a specific account is written off

Accepted Answer

A) total assets will be unchanged. 
B) net income will decrease. 
C) total assets will decrease. 
D) total assets will increase. 
A) total assets will be unchanged. 
B) net income will decrease. 
C) total assets will decrease. 
D) total assets will increase.

Question 14

The following information is related to December 31, 2016 balances. - Accounts receivable $\quad\quad\quad\quad\quad\quad\quad\quad \$ 3,150,000$
- Allowance for doubtful accounts (credit) $\quad ( 270,000 )$
- Cash realizable value $\quad\quad\quad\quad\quad\quad\quad\quad \$ 2,880,000$ During 2017 sales on account were $870,000 and collections on account were $516,000. Also during 2017 the company wrote off $48,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $324,000. The change in the cash realizable value from the balance at 12/31/16 to 12/31/17 was a

Accepted Answer

A) $300,000 increase. 
B) $354,000 increase. 
C) $252,000 increase. 
D) $306,000 increase. 
A) $300,000 increase. 
B) $354,000 increase. 
C) $252,000 increase. 
D) $306,000 increase.

Question 15

A company has an ending accounts receivable balance of $1,800,000 and it estimates that uncollectible accounts will be 2% of the receivable balance. If Allowance for Doubtful Accounts has a credit balance of $4,000 prior to adjustment, its balance after adjustment will be a credit of

Accepted Answer

A) $40,000. 
B) $36,000. 
C) $35,920. 
D) $32,000. 
A) $40,000. 
B) $36,000. 
C) $35,920. 
D) $32,000.

Question 16

A debit balance in the Allowance for Doubtful Accounts

Accepted Answer

A) is the normal balance for that account. 
B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. 
C) indicates that actual bad debt write-offs have been less than what was estimated. 
D) cannot occur if the percentage of receivables method of estimating bad debts is used. 
A) is the normal balance for that account. 
B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. 
C) indicates that actual bad debt write-offs have been less than what was estimated. 
D) cannot occur if the percentage of receivables method of estimating bad debts is used.

Question 17

If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.

Accepted Answer

A) True 
 B)False

Question 18

If a company sells its accounts receivables to a factor

Accepted Answer

A) the seller pays a commission to the factor. 
B) the factor pays a commission to the seller. 
C) there is a gain on the sale of the receivables. 
D) the seller defers recognition of sales revenue until the account is collected. 
A) the seller pays a commission to the factor. 
B) the factor pays a commission to the seller. 
C) there is a gain on the sale of the receivables. 
D) the seller defers recognition of sales revenue until the account is collected.

Question 19

The allowance method of accounting for bad debts violates the matching principle.

Accepted Answer

A) True 
 B)False

Question 20

YZ Company accepted a national credit card for a $10,000 purchase. The cost of the goods sold is $8,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

Accepted Answer

A) Increase by $1,940. 
B) Increase by $2,000. 
C) Increase by $1,700. 
D) Increase by $9,700. 
A) Increase by $1,940. 
B) Increase by $2,000. 
C) Increase by $1,700. 
D) Increase by $9,700.

Exam 7: Reporting and Analyzing Receivables

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note?

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

The expense recognition

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record Bad Debt Expense

The two key parties to a promissory note are the

The allowance method of accounting for uncollectible accounts is required if

An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3,200 debit balance, the adjustment to record bad debts for the period will require a

On January 15, Nifty Company sells merchandise on account to Martinez Associates for $5,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $1,000 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

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

Under the allowance method, Bad Debt Expense is recorded

An alternative name for Bad Debt Expense is

Under the allowance method, when a specific account is written off

A company has an ending accounts receivable balance of $1,800,000 and it estimates that uncollectible accounts will be 2% of the receivable balance. If Allowance for Doubtful Accounts has a credit balance of $4,000 prior to adjustment, its balance after adjustment will be a credit of

A debit balance in the Allowance for Doubtful Accounts

If a company has significant concentrations of credit risk, it must discuss this risk in the notes to its financial statements.

If a company sells its accounts receivables to a factor

The allowance method of accounting for bad debts violates the matching principle.

YZ Company accepted a national credit card for a $10,000 purchase. The cost of the goods sold is $8,000. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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