Question 1

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

Accepted Answer

A)  trade receivable. 
B)  note receivable. 
C)  accounts receivable. 
D)  income tax receivable. 
A)  trade receivable. 
B)  note receivable. 
C)  accounts receivable. 
D)  income tax receivable.

Question 2

When a note is written to settle an open account no entry is necessary.

Accepted Answer

A) True 
 B)False

Question 3

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant.

Accepted Answer

A)  This is a false statement because the direct write-off method violates the matching principle. 
B)  This is a true statement based on the concept of materiality. 
C)  This is a false statement because the direct write-off method can only be used for tax reporting. 
D)  This is a true statement because companies can choose either the direct write-off or the allowance method for financial reporting, as long as they consistently apply the method. 
A)  This is a false statement because the direct write-off method violates the matching principle. 
B)  This is a true statement based on the concept of materiality. 
C)  This is a false statement because the direct write-off method can only be used for tax reporting. 
D)  This is a true statement because companies can choose either the direct write-off or the allowance method for financial reporting, as long as they consistently apply the method.

Question 4

The interest on a $10,000, 6%, 60-day note receivable is

Accepted Answer

A)  $680. 
B)  $100. 
C)  $200. 
D)  $300. 
A)  $680. 
B)  $100. 
C)  $200. 
D)  $300.

Question 5

During 2014 Sedgewick Inc. had sales on account of $264,000, cash sales of $108,000, and collections on account of $168,000. In addition, they collected $2,900 which had been written off as uncollectible in 2013. As a result of these transactions the change in the accounts receivable balance indicates a

Accepted Answer

A)  $201,100 increase. 
B)  $ 96,000 increase. 
C)  $ 93,100 increase. 
D)  $204,000 increase. 
A)  $201,100 increase. 
B)  $ 96,000 increase. 
C)  $ 93,100 increase. 
D)  $204,000 increase.

Question 6

Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

Accepted Answer

A)  $9,000 
B)  $31,000 
C)  $40,000 
D)  $49,000 
A)  $9,000 
B)  $31,000 
C)  $40,000 
D)  $49,000

Question 7

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 8

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 9

Schmidt Company received a letter from Deborah Stine, a customer. Deborah had purchased $325 worth of clothing from Schmidt on credit. She has made two payments of $50 each. She has missed the last two payments, and has received a collection letter from Schmidt. Her total debt presently, with interest and late fees, is $251.13.
Deborah sent a letter to Schmidt in which she asked for her debt to be forgiven. She said she had heard that companies make allowances for accounts they are doubtful about collecting, and that Schmidt certainly should have been doubtful about her-that as a college student she had changed her major three times. She also said that she could not enjoy a high quality of life when making such high payments, but that she didn't want to be embarrassed by bill collectors, either. She especially didn't want her parents to find out that she had not paid her debts. Having Schmidt write off her account seemed to her the best solution in the circumstances. She added that the clothes she bought at Schmidt were among the best she had ever owned, and that she "told everybody" that Schmidt was definitely the best place to get clothes.
Required:
You are the accounting manager for Schmidt. Write a short letter to Deborah explaining why her debt cannot be written off.

Accepted Answer

The answer of Schmidt Company received a letter from Deborah...

Question 10

Which one of the following is not an accounting problem (issue) associated with accounts receivable?

Accepted Answer

A)  Depreciating accounts receivable 
B)  Recognizing accounts receivable 
C)  Valuing accounts receivable 
D)  Accelerating cash receipts from accounts receivable 
A)  Depreciating accounts receivable 
B)  Recognizing accounts receivable 
C)  Valuing accounts receivable 
D)  Accelerating cash receipts from accounts receivable

Question 11

Short-term notes receivable

Accepted Answer

A)  have a related allowance account called Allowance for Doubtful Notes Receivable. 
B)  are reported at their gross realizable value. 
C)  use the same estimations and computations as accounts receivable to determine cash realizable value. 
D)  present the same valuation problems as long-term notes receivables. 
A)  have a related allowance account called Allowance for Doubtful Notes Receivable. 
B)  are reported at their gross realizable value. 
C)  use the same estimations and computations as accounts receivable to determine cash realizable value. 
D)  present the same valuation problems as long-term notes receivables.

Question 12

Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 *0.10 *10 6/12.

Accepted Answer

A) True 
 B)False

Question 13

In the table below the information for four companies is provided. $$\begin{array} { | l | c | c | } 
\hline \text { Compary } & \begin{array} { c } 
\text { Accounts Receivable } \
\text { turnover }
\end{array} & \text { Average collection period } \
\hline \text { Martin } & 13.9 & 26.3 \
\hline \text { Lewis } & 13.3 & 27.4 \
\hline \text { Danforth } & 10.4 & \mathbf { 3 5 . 1 } \
\hline \text { Gamer } & 14.5 & 25.2 \
\hline \text { Industry Average } & 13.0 & 28.1 \
\hline
\end{array}$$ Assuming all four companies are in the same industry, which company appears to have the greatest likelihood of paying its current obligations?

Accepted Answer

A)  Martin 
B)  Lewis 
C)  Danforth 
D)  Garner 
A)  Martin 
B)  Lewis 
C)  Danforth 
D)  Garner

Question 14

If the amount of uncollectible account expense is overstated at year end

Accepted Answer

A)  net income will be overstated. 
B)  stockholders' equity will be overstated. 
C)  Allowance for Doubtful accounts will be understated. 
D)  net Accounts Receivable will be understated. 
A)  net income will be overstated. 
B)  stockholders' equity will be overstated. 
C)  Allowance for Doubtful accounts will be understated. 
D)  net Accounts Receivable will be understated.

Question 15

A captive finance company refers to

Accepted Answer

A)  a finance company that is owned by individuals who borrow money from the company. 
B)  finance companies that won't allow early repayment of loans. 
C)  a company that is wholly owned by another company and provides financing to purchasers of its owner company's goods. 
D)  any company that issues a major credit card. 
A)  a finance company that is owned by individuals who borrow money from the company. 
B)  finance companies that won't allow early repayment of loans. 
C)  a company that is wholly owned by another company and provides financing to purchasers of its owner company's goods. 
D)  any company that issues a major credit card.

Question 16

When using the allowance method bad debt expense is recorded when an individual customer defaults.

Accepted Answer

A) True 
 B)False

Question 17

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

A)  debit Allowance for Doubtful Accounts and credit Bad Debt Expense. 
B)  debit Allowance for Doubtful Accounts and credit Accounts Receivable. 
C)  debit Bad Debt Expense and credit Allowance for Doubtful Accounts. 
D)  debit Bad Debt Expense and credit Accounts Receivable. 
A)  debit Allowance for Doubtful Accounts and credit Bad Debt Expense. 
B)  debit Allowance for Doubtful Accounts and credit Accounts Receivable. 
C)  debit Bad Debt Expense and credit Allowance for Doubtful Accounts. 
D)  debit Bad Debt Expense and credit Accounts Receivable.

Question 18

If a company has a significant concentration of credit risk, it is not required to discuss that in its notes to its financial statements as that could increase the related risk.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

The direct write-off method of accounting for bad debts

Accepted Answer

A)  uses an allowance account. 
B)  uses a contra asset account. 
C)  does not require estimates of bad debt losses. 
D)  is the preferred method under generally accepted accounting principles. 
A)  uses an allowance account. 
B)  uses a contra asset account. 
C)  does not require estimates of bad debt losses. 
D)  is the preferred method under generally accepted accounting principles.

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

When a note is written to settle an open account no entry is necessary.

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant.

The interest on a $10,000, 6%, 60-day note receivable is

Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

The expense recognition

The allowance method of accounting for uncollectible accounts is required if

Which one of the following is not an accounting problem (issue) associated with accounts receivable?

Short-term notes receivable

Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 0.10 10 6/12.

If the amount of uncollectible account expense is overstated at year end

A captive finance company refers to

When using the allowance method bad debt expense is recorded when an individual customer defaults.

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

If a company has a significant concentration of credit risk, it is not required to discuss that in its notes to its financial statements as that could increase the related risk.

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

The direct write-off method of accounting for bad debts

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

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

Understanding Investments and Acquisitions in Accounting

Filters

Exam 8: Reporting and Analyzing Receivables

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

When a note is written to settle an open account no entry is necessary.

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant.

The interest on a $10,000, 6%, 60-day note receivable is

Using the allowance method, the uncollectible accounts for the year are estimated to be $40,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

The expense recognition

The allowance method of accounting for uncollectible accounts is required if

Which one of the following is not an accounting problem (issue) associated with accounts receivable?

Short-term notes receivable

Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 *0.10 *10 6/12.

If the amount of uncollectible account expense is overstated at year end

A captive finance company refers to

When using the allowance method bad debt expense is recorded when an individual customer defaults.

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

If a company has a significant concentration of credit risk, it is not required to discuss that in its notes to its financial statements as that could increase the related risk.

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

The direct write-off method of accounting for bad debts

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

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

Understanding Investments and Acquisitions in Accounting

Filters

Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 0.10 10 6/12.