Deck 8: Receivables

Question 1

Receivables not currently collectible are reported in the investments section of the balance sheet.

Answer 1

True

Question 2

No allowance account is used with the direct write-off method.

Answer 2

True

Question 3

When using the percent of sales method of estimating uncollectibles the entry to record bad debt expense includes a credit to Accounts Receivable.

Answer 3

False

Question 4

Allowance for Doubtful Accounts is a liability account.

Question 5

The difference between the balance in Accounts Receivable and the balance in the Allowance for Doubtful Accounts is called the net realizable value of the receivables.

Question 6

Small companies can use either the direct write-off method or the allowance method.

Question 7

Notes Receivable and Accounts Receivable can also be called trade receivables.

Question 8

Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.

Question 9

A disadvantage of factoring is that the company selling its receivables immediately receives cash.

Question 10

When using the direct write-off method of accounting for uncollectible receivables, the account Allowance for Doubtful Accounts is debited when a specific account is determined to be uncollectible.

Question 11

GAAP requires companies with a large amount of receivables to use the allowance method.

Question 12

Of the two methods of accounting for uncollectible receivables, the allowance method provides in advance for uncollectible receivables.

Question 13

The direct write­off method records bad debt expense when an account is determined to be uncollectible.

Question 14

The direct write-off method records bad debt expense in the year the specific account receivable is determined to be uncollectible.

Question 15

Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting for uncollectible accounts.

Question 16

Trade receivables occur when two companies trade or exchange notes receivables.

Question 17

Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.

Question 18

When an account receivable that has been written off is subsequently collected, the account receivable must first be reinstated before recording the receipt of payment.

Question 19

When companies sell their receivables to other companies, the transaction is called factoring.

Question 20

Other receivables include nontrade receivables such as loans to company officers.

Question 21

If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.

Question 22

A primary difference between the direct write-off and allowance method is whether or not bad debts is based on a percentage of sales.

Question 23

At the end of a period before adjustment), Allowance for Doubtful Accounts has a credit balance of $5,000. The Accounts Receivable balance is analyzed by aging the accounts and the amount estimated to be uncollectible is $50,000. The amount to be recorded in the adjusting entry for the Bad Debt Expense is $45,000.

Question 24

At the end of a period before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The net credit sales for the period total $500,000. If the company estimates uncollectible accounts expense at 1% of net credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.

Question 25

If a promissory note is dishonored, the payee should still record interest revenue.

Question 26

The party promising to pay a note at maturity is the maker.

Question 27

When using the analysis of receivables method for estimating uncollectible receivables, the amount computed in the analysis is usually the amount that would be recorded in the end-of-period adjusting entry.

Question 28

At the end of a period before adjustment), Allowance for Doubtful Accounts has a debit balance of $2,000. The Accounts Receivable balance is analyzed by aging the accounts and the amount estimated to be uncollectible is $15,000. The amount to be recorded in the adjusting entry for the bad debt expense is $15,000.

Question 29

The interest on a 6%, 60-day note for $5,000 is $300.

Question 30

When accounting for uncollectible receivables and using the percentage of sales method, the matching principle is violated.

Question 31

The equation for computing interest on an interest-bearing note is as follows: Interest = Maturity Value × Interest Rate × Time.

Question 32

In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.

Question 33

The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off since the beginning of the year.

Question 34

The maturity value of a 12%, 60-day note for $5,000 is $5,600.

Question 35

The maturity value of a note receivable is always the same as its face value.

Question 36

When the allowance method for accounting for uncollectible receivables is used, net income is reduced when a specific receivable is written off.

Question 37

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

Question 38

When a note is received from a customer on account, it is recorded by debiting Notes Receivable and crediting Accounts Receivable.

Question 39

The due date of a 60-day note dated July 10 is September 10.

Question 40

At the end of a period before adjustment), Allowance for Doubtful Accounts has a debit balance of $500. Net credit sales for the period total $800,000. If bad debt expense is estimated at 1% of net credit sales, the amount of bad debt expense to be recorded in the adjusting entry is $8,500.

Question 41

Which statement is not true?

A) Current assets are normally reported in order of their liquidity.
B) Disclosures related to receivables are reported on the financial statement notes.
C) Cash and cash equivalents are the first items reported under current assets.
D) All receivables that are expected to be realized in cash beyond 265 days are reported in the non­current assets section.

Question 42

A note receivable due in 18 months is listed on the balance sheet under the caption

A) long-term liabilities
B) fixed assets
C) current assets
D) investments

Question 43

Notes or accounts receivables that result from sales transactions are often called

A) nontrade receivables
B) trade receivables
C) merchandise receivables
D) sales receivables

Question 44

The operating expense recorded from uncollectible receivables can be called all of the following except

A) accounts receivable
B) bad debt expense
C) doubtful accounts expense
D) uncollectible accounts expense

Question 45

The number of days' sales in receivables is an estimate of the length of time the accounts receivables have been outstanding.

Question 46

Other receivables includes all of the following except

A) notes receivable
B) receivables from employees
C) taxes receivable
D) interest receivable

Question 47

If collection of another receivable is expected beyond one year, it is classified as an)

A) other receivable under noncurrent assets
B) other receivable under current assets
C) investment under current assets
D) investment under noncurrent assets

Question 48

Two methods of accounting for uncollectible accounts are the

A) direct write-off method and the allowance method
B) allowance method and the accrual method
C) allowance method and the net realizable method
D) direct write-off method and the accrual method

Question 49

Receivables that are expected to be collected in cash in eighteen months or less are reported in the current asset section of the balance sheet.

Question 50

When does an account become uncollectible?

A) when accounts receivable is converted into notes receivable
B) when a discount is availed on notes receivable
C) there is no general rule for when an account becomes uncollectible
D) at the end of the fiscal year

Question 51

The accounts receivable turnover measures the length of time in days it takes to collect a receivable.

Question 52

An alternative name for bad debt Expense is an)

A) collection expense
B) credit loss expense
C) uncollectible accounts expense
D) deadbeat expense

Question 53

The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.

Question 54

The direct write-off method of accounting for uncollectible accounts

A) emphasizes balance sheet relationships
B) is often used by small companies and companies with few receivables
C) emphasizes cash realizable value
D) emphasizes the matching of expenses with revenues

Question 55

The two methods of accounting for uncollectible receivables are the allowance method and the

A) equity method
B) direct write-off method
C) interest method
D) cost method

Question 56

The accounts receivables turnover ratio is computed by dividing total gross sales by the average net receivables during the year.

Question 57

The receivable that is usually evidenced by a formal, written instrument of credit is an)

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

Question 58

The term "receivables" includes all

A) money claims against other entities
B) merchandise to be collected from individuals or companies
C) cash to be paid to creditors
D) cash to be paid to debtors

Question 59

Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited

A) at the end of each accounting period
B) when a credit sale is past due
C) whenever a predetermined amount of credit sales have been made
D) when an account is determined to be worthless

Question 60

Which of the following receivables would not be classified as an "other receivable"?

A) advance to an employee
B) interest receivable
C) refundable income tax
D) notes receivable

Question 61

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 the accounts receivable?

A) $51,000
B) $289,000
C) $340,000
D) $391,000

Question 62

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

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

Question 63

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?

A) Uncollectible Accounts Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Interest Expense

Question 64

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?

A) Uncollectible Accounts Expense
B) Allowance for Doubtful Accounts
C) Accounts Receivable
D) Interest Expense

Question 65

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

A) uncollectible accounts expense for the year
B) total of the accounts receivables written-off during the year
C) total estimated uncollectible accounts as of the end of the year
D) sum of all accounts that are past due

Question 66

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

A) a customer's account becomes past due
B) an account becomes bad and is written off
C) a sale is made
D) management estimates the amount of uncollectibles

Question 67

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

A) allowance method based on aging the receivables
B) direct write-off method
C) accrual method
D) declining value method

Question 68

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

A) debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts
B) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
D) debit to Loss on Credit Sales and a credit to Accounts Receivable

Question 69

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

A) the customer closes its business
B) the customer is making small but regular payments
C) the customer files for bankruptcy
D) the customer cannot be located

Question 70

The 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 which of the following?

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

Question 71

A debit balance in the Allowance for Doubtful Accounts

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

Question 72

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

A) debit to Bad Debt Expense for $7,700
B) debit to Bad Debt Expense for $6,400
C) debit to Bad Debt expense for $5,100
D) credit to Allowance for Doubtful Accounts for $1,300

Question 73

An aging of a company's accounts receivable indicates 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

A) debit to Bad Debt Expense for $8,600
B) debit to Bad Debt Expense for $7,900
C) debit to Bad Debt Expense for $7,200
D) credit to Allowance for Doubtful Accounts for $700

Question 74

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

A) liabilities decrease
B) net income is unchanged
C) total assets are unchanged
D) total assets decrease

Question 75

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?

A) Uncollectible Accounts Receivable
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Bad Debt Expense

Question 76

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

A) contra asset, credit
B) asset, debit
C) asset, credit
D) contra asset, debit

Question 77

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

A) understates accounts receivable on the balance sheet
B) violates the matching principle
C) is too difficult to use for many companies
D) is based on estimates

Question 78

Selling receivables is called

A) factoring
B) sales revenue
C) a factor
D) sold receivables

Question 79

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?

A) Uncollectible Accounts Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Interest Expense

Question 80

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 the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?

A) Bad Debt Expense Allowance for Doubtful Accounts
17,000
17,000
B) Bad Debt Expense Allowance for Doubtful Accounts
19,500
19,500
C) Bad Debt Expense Allowance for Doubtful Accounts
22,000
22,000
D) Bad Debt Expense Allowance for Doubtful Accounts
65,000
65,000