Question 1

Removing an uncollectible account and its corresponding allowance from the accounting records is called:

Accepted Answer

A)  a write-off 
B)  a write-up 
C)  double entry accounting 
D)  elimination accounting 
A)  a write-off 
B)  a write-up 
C)  double entry accounting 
D)  elimination accounting

Question 2

There are advantages and disadvantages to extending credit to customers.Which of the following statements below expresses the general reason for extending credit?

Accepted Answer

A)  Lower sales revenues exceed bad debt savings. 
B)  Wage cost savings exceed delayed receipt of cash. 
C)  Gross profits exceed bad debt costs. 
D)  The speed of cash receipts exceeds bad debt costs. 
A)  Lower sales revenues exceed bad debt savings. 
B)  Wage cost savings exceed delayed receipt of cash. 
C)  Gross profits exceed bad debt costs. 
D)  The speed of cash receipts exceeds bad debt costs.

Question 3

Delectable,Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000,a credit balance in its Allowance for Doubtful Accounts of $50,and Sales Revenue of $100,000.Based on an aging of its receivable,management estimates that $1,000 of receivables will be uncollectible.Delectable's financial statements will show:

Accepted Answer

A)  Bad Debt Expense of $1,000 
B)  Allowance for Doubtful Accounts of $(1,050) 
C)  Allowance for Doubtful Accounts of $(950) 
D)  Bad Debt Expense of $950 
A)  Bad Debt Expense of $1,000 
B)  Allowance for Doubtful Accounts of $(1,050) 
C)  Allowance for Doubtful Accounts of $(950) 
D)  Bad Debt Expense of $950

Question 4

Cary Inc.reported net credit sales of $300,000 for the current year.The unadjusted credit balance in its Allowance for Doubtful Accounts is $500.The company has experienced bad debt losses of 1% of credit sales in prior periods.Using the percentage of credit sales method,what amount should the company record as an estimate of Bad Debt Expense?

Accepted Answer

A)  $2,500 
B)  $3,000 
C)  $2,980 
D)  $3,200 
A)  $2,500 
B)  $3,000 
C)  $2,980 
D)  $3,200

Question 5

The direct write-off method for uncollectible accounts:

Accepted Answer

A)  violates the expense recognition principle. 
B)  is an acceptable alternative method of recognizing Bad Debt Expense under GAAP. 
C)  results in higher Bad Debt Expense for most companies. 
D)  may only be used by companies that do not extend credit to their customers. 
A)  violates the expense recognition principle. 
B)  is an acceptable alternative method of recognizing Bad Debt Expense under GAAP. 
C)  results in higher Bad Debt Expense for most companies. 
D)  may only be used by companies that do not extend credit to their customers.

Question 6

For billing and collection purposes,a company will internally keep a separate accounts receivable account for each customer called a:

Accepted Answer

A)  customer record. 
B)  subsidiary account. 
C)  subsidiary ledger. 
D)  debit memorandum. 
A)  customer record. 
B)  subsidiary account. 
C)  subsidiary ledger. 
D)  debit memorandum.

Question 7

The allowance method for uncollectible accounts conforms to the expense recognition principle.

Accepted Answer

A) True 
 B)False

Question 8

Cairo Co.uses the allowance method of accounting for uncollectible accounts.Cairo Co.accepted a $5,000,12%,3-month note dated May 16,from Alexandria Co.in exchange for its past-due account receivable.
Required:
Part a.Prepare the journal entry for the receipt of the note on May 16.
Part b.Prepare the journal entries for (1)the receipt of interest and (2)the receipt of the principal balance at maturity on August 14.
Part c.Assume that Alexandria made the interest payment but not the principal payment on August 14.On November 30,Cairo writes off the note when it becomes clear that Alexandria will never pay.Prepare the journal entry to write-off the note receivable.

Accepted Answer

Part a

Question 9

Under the allowance method for uncollectible accounts,the write-off of a specific account will not affect total assets.

Accepted Answer

A) True 
 B)False

Question 10

On March 1,Preston Corporation loans $3,000 to an employee and receives a 5%,three-month note.Interest will be paid when the note matures on May 31.Assuming that interest on the note has not previously been accrued,what entry will Preston make on April 30?

Accepted Answer

A)  Debit Interest Revenue and credit Interest Receivable $25 
B)  Debit Interest Receivable and credit Interest Revenue $25 
C)  Debit Interest Receivable and credit Interest Revenue $50 
D)  Debit Cash and credit Interest Revenue for $50 
A)  Debit Interest Revenue and credit Interest Receivable $25 
B)  Debit Interest Receivable and credit Interest Revenue $25 
C)  Debit Interest Receivable and credit Interest Revenue $50 
D)  Debit Cash and credit Interest Revenue for $50

Question 11

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Accepted Answer

A) True 
 B)False

Question 12

Best,Inc.loaned $100,000 for three months on November 1 to one of its customers at the rate of 6%.The principal amount of the loan plus interest is due on the following February 1.The related adjusting entry was recorded on December 31.What is the amount of interest revenue that should be included in the entry dated February 1?

Accepted Answer

A)  0 
B)  $2000 
C)  $1000 
D)  $500. 
A)  0 
B)  $2000 
C)  $1000 
D)  $500.

Question 13

Because it is easier to use,the direct write-off method for uncollectible accounts is typically used instead of the allowance method.

Accepted Answer

A) True 
 B)False

Question 14

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Accepted Answer

A)  Expense recognition principle ("matching") 
B)  Revenue recognition principle 
C)  Lower-of-cost-or-market value principle 
D)  Cost principle 
A)  Expense recognition principle ("matching") 
B)  Revenue recognition principle 
C)  Lower-of-cost-or-market value principle 
D)  Cost principle

Question 15

Why is the direct write-off method not allowed under GAAP to account for doubtful accounts?

Accepted Answer

A)  It is too difficult to implement. 
B)  It is allowed in certain circumstances. 
C)  It violates the expense recognition principle ("matching"). 
D)  It is only allowed under IFRS. 
A)  It is too difficult to implement. 
B)  It is allowed in certain circumstances. 
C)  It violates the expense recognition principle ("matching"). 
D)  It is only allowed under IFRS.

Question 16

The Treadwell Tire Company had net accounts receivable of $67,900 at the beginning of the year and $72,400 at the end of the year.If the company's net sales revenue during the year was $876,875,what is the receivables turnover ratio?

Accepted Answer

A)  12.5 
B)  29.2 
C)  0.08 
D)  0.034 
A)  12.5 
B)  29.2 
C)  0.08 
D)  0.034

Question 17

The following information is available:
 
The days to collect for 2016 is closest to:

Accepted Answer

A)  40 days. 
B)  41 days. 
C)  43 days. 
D)  42 days. 
A)  40 days. 
B)  41 days. 
C)  43 days. 
D)  42 days.

Question 18

If the receivables turnover ratio rises significantly,the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

Accepted Answer

A) True 
 B)False

Question 19

On December 1,2015,a company converted an existing account receivable in the amount of $6,000 to a note receivable to allow an extended payment period.The note is due in three months and includes an annual interest rate of 9%,The company prepares year-end financial statements on December 31 and recorded adjusting entries at that time.What entry should the company make on March 1,2016,when the interest is paid at maturity?

Accepted Answer

A)  Debit Cash and credit Notes Receivable for $6,135 
B)  Debit Cash for $6,135, credit Notes Receivable for $6,000, and credit Interest Revenue for $135 
C)  Debit Cash for $135, and credit Interest revenue for $135 
D)  Debit Cash for $135, credit Interest Receivable for $45, and credit Interest Revenue for $90 
A)  Debit Cash and credit Notes Receivable for $6,135 
B)  Debit Cash for $6,135, credit Notes Receivable for $6,000, and credit Interest Revenue for $135 
C)  Debit Cash for $135, and credit Interest revenue for $135 
D)  Debit Cash for $135, credit Interest Receivable for $45, and credit Interest Revenue for $90

Question 20

The Allowance for Doubtful Accounts account is a contra-account that offsets:

Accepted Answer

A)  Bad Debt Expense. 
B)  Cash. 
C)  Net Income. 
D)  Accounts Receivable. 
A)  Bad Debt Expense. 
B)  Cash. 
C)  Net Income. 
D)  Accounts Receivable.

Removing an uncollectible account and its corresponding allowance from the accounting records is called:

There are advantages and disadvantages to extending credit to customers.Which of the following statements below expresses the general reason for extending credit?

The direct write-off method for uncollectible accounts:

For billing and collection purposes,a company will internally keep a separate accounts receivable account for each customer called a:

The allowance method for uncollectible accounts conforms to the expense recognition principle.

Under the allowance method for uncollectible accounts,the write-off of a specific account will not affect total assets.

On March 1,Preston Corporation loans $3,000 to an employee and receives a 5%,three-month note.Interest will be paid when the note matures on May 31.Assuming that interest on the note has not previously been accrued,what entry will Preston make on April 30?

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Because it is easier to use,the direct write-off method for uncollectible accounts is typically used instead of the allowance method.

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Why is the direct write-off method not allowed under GAAP to account for doubtful accounts?

The Treadwell Tire Company had net accounts receivable of $67,900 at the beginning of the year and $72,400 at the end of the year.If the company's net sales revenue during the year was $876,875,what is the receivables turnover ratio?

The following information is available: The days to collect for 2016 is closest to:

If the receivables turnover ratio rises significantly,the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

The Allowance for Doubtful Accounts account is a contra-account that offsets:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 8: Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Removing an uncollectible account and its corresponding allowance from the accounting records is called:

There are advantages and disadvantages to extending credit to customers.Which of the following statements below expresses the general reason for extending credit?

The direct write-off method for uncollectible accounts:

For billing and collection purposes,a company will internally keep a separate accounts receivable account for each customer called a:

The allowance method for uncollectible accounts conforms to the expense recognition principle.

Under the allowance method for uncollectible accounts,the write-off of a specific account will not affect total assets.

On March 1,Preston Corporation loans $3,000 to an employee and receives a 5%,three-month note.Interest will be paid when the note matures on May 31.Assuming that interest on the note has not previously been accrued,what entry will Preston make on April 30?

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Because it is easier to use,the direct write-off method for uncollectible accounts is typically used instead of the allowance method.

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Why is the direct write-off method not allowed under GAAP to account for doubtful accounts?

The Treadwell Tire Company had net accounts receivable of $67,900 at the beginning of the year and $72,400 at the end of the year.If the company's net sales revenue during the year was $876,875,what is the receivables turnover ratio?

The following information is available: The days to collect for 2016 is closest to:

If the receivables turnover ratio rises significantly,the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

The Allowance for Doubtful Accounts account is a contra-account that offsets:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters