Deck 9: Receivables

Question 1

The receivables of an organization can be categorized into accounts receivable, notes receivable, and other receivables.

Answer 1

True

Question 2

When a business accepts payment through credit cards or debit cards, it has to pay a fee to the credit card or debit card processor.

Answer 2

True

Question 3

The two major types of receivables are interest receivable and taxes receivable.

Answer 3

False

Question 4

Which of the following statements is true?

A) Accounts receivable are more liquid than cash.
B) Notes receivable are always due in 30 days.
C) Notes receivable are longer in term than accounts receivable.
D) Accounts receivable are liabilities.

Question 5

Businesses must maintain a single account receivable account for all customers.

Question 6

A debtor is a party to the transaction who will receive the cash for the transaction at a later date.

Question 7

Notes receivable represents an undertaking by a debtor to pay a fixed amount along with interest at a certain future date.

Question 8

Factoring is one of the options available to a business to reduce the risk of uncollectible accounts receivable.

Question 9

The terms of payment for a note receivable are longer than that of an account receivable.

Question 10

A company will have receivables whenever it sells goods or services on credit.

Question 11

Which of the following is included in the category of other receivables?

A) interest receivable
B) accounts receivable
C) notes receivable
D) investments

Question 12

Individual customer accounts of accounts receivable are known as subsidiary accounts.

Question 13

Sales through credit cards and debit cards are journalized in the same way as credit sales are journalized.

Question 14

Dividends receivable, interest receivable, and taxes receivable are commonly categorized as other receivables.

Question 15

When a business pledges its accounts receivable, it transfers the right to collect cash from customers to the bank.

Question 16

In order to exercise effective internal control over receivables the credit department must have access cash.

Question 17

Sales through credit cards or debit cards transfer the risk of collection of receivables from the seller to the card issuer.

Question 18

A receivable can be described as a monetary claim against a business or an individual.

Question 19

The collection period of accounts receivable is usually long therefore it is classified as a long-term asset in the balance sheet.

Question 20

Accounts receivable are also known as trade receivables.

Question 21

Tom's Fit Inc. a readymade garment seller accepts payment through credit cards. During the month of August, the card sales amounted to $12,000. The processor charges a 3% fee. Assuming that the credit card processor uses the gross method, provide the journal entries for the receipt of funds and the collection of fees at the end of the period.

Question 22

Which of the following is an example of exercise of internal control over receivables?

A) separate cash collection and credit allowance duties
B) extend credit only to customers who are most likely to pay
C) pursue collection from customers to maximize cash flow
D) ensure quick recovery of accounts receivable

Question 23

The direct write-off method of accounting for uncollectible receivables is primarily used by small, non-public companies.

Question 24

For a company with significant uncollectible receivables, the direct write-off method is unsuitable because:

A) it overstates liabilities on the balance sheet.
B) it violates the matching principle.
C) direct write-offs would be immaterial.
D) it is not allowed for tax reasons.

Question 25

On January 1, Davidson Services has the following balances: Davidson has the following transactions during January: Credit sales of $100,000, collections of credit sales of $85,000, and write-offs of $15,000. Davidson uses the direct write-off method. At the end of January, the balance in Accounts Receivable is:

A) $16,000.
B) $24,000.
C) $68,000.
D) $28,000.

Question 26

A company with significant amounts of accounts receivable, experiences uncollectible accounts from time to time. If the company uses the direct write-off method, the effect of writing off of an uncollectible receivable will be a(n):

A) reduction in net income.
B) nil on net income.
C) increase in total assets.
D) generation of positive cash flow.

Question 27

Under the direct write-off method, the entry to write off an uncollectible account will include:

A) a debit to Bad Debts Expense account.
B) a debit to the customer's Account Receivable.
C) a credit to the Allowance for Bad Debts.
D) No entry is made to write off uncollectible accounts.

Question 28

The direct write-off method is only acceptable for companies that have very few uncollectible receivables.

Question 29

The direct write-off method for uncollectible accounts violates the matching principle.

Question 30

Which of the following is a disadvantage of accepting credit cards or debit cards for a business?

A) It will have to bear the responsibility of collecting money from the customer.
B) It will have to bear the risk of nonpayment.
C) It will have to pay a certain amount as processing fee.
D) It will have to check the credit ratings of customers.

Question 31

On January 1, Davidson Services has the following balances: Davidson has the following transactions during January: Credit sales of $100,000, collections of credit sales of $85,000, and write-offs of $15,000. Davidson uses the direct write-off method. At the end of January, the balance in Bad Debts Expense is:

A) $16,000.
B) $17,000.
C) $12,000.
D) $15,000.

Question 32

Give the journal entry to record an uncollectible account receivable using the direct write-off method.

Question 33

Under the direct write-off method, which of the following is included in the entry to write off an uncollectible account?

A) a credit to the Allowance for Bad Debts
B) a credit to the customer's Account Receivable
C) a debit to Allowance for Uncollectible Accounts
D) No entry is made to write off uncollectible accounts.

Question 34

Charles and Charms, a merchandiser, has an account receivable for $125 which they now decided to be uncollectible. The merchandiser uses the direct write-off method. Which of the following entries is required to record the write-off?

A) $$\begin{array} { | c | r | r | } \hline \text { Bad Debts Expense } & 125 & \\\hline \text { Accounts Receivable } & & 125 \\\hline\end{array}$$
B) $\begin{array}{c}\begin{array}{|l}\hline \text {Cash}\\\hline \text {Accounts Receivable}\\\hline\end{array}\begin{array}{|l}\hline125\\\hline\\\hline\end{array}\begin{array}{|l|}\hline\\\hline125\\\hline\end{array}\end{array}$

C) $$\begin{array} { | c | r | r | } \hline \text { Allowance for Bad Debts } & 125 & \\\hline \text { Accounts Receivable } & & 125 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 125 & \\\hline \text { Bad Debts Expense } & & 125 \\\hline\end{array}$$

Question 35

The expense associated with the cost of uncollectible accounts receivable is known as bad debts expense.

Question 36

Tom's Fit Inc. a readymade garment seller accepts payment through credit cards. During the month of August, the card sales amounted to $12,000. The processor charges a 3% fee. Assume that the processor nets the deposits. Provide the journal entry for card sales revenue.

Question 37

When a company is using the direct write-off method, and an account is written off, the journal entry consists of a:

A) debit to Accounts Receivable and a credit to Cash.
B) credit to Accounts Receivable and a debit to Bad Debts Expense.
C) debit to the Allowance for Bad Debts and a credit to Accounts Receivable.
D) credit Accounts Receivable and a debit to Interest Expense.

Question 38

Which of the following statements is true of the direct write-off method?

A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.

Question 39

Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.

Question 40

The following information is from the records of Armadillo Camera Shop: $$\begin{array} { | l | r | } \hline\text { Accounts receivable, December 31, 2014 } & \$ 80,000 \text { (debit) } \\\hline \text { Net credit sales for 2014 } & 165,000 \\\hline \text { Accounts written off as uncollectible during 2014 } & 15,000 \\\hline \text { Cash sales during 2014 } & 40,000 \\\hline\end{array}$$ The company uses the direct write-off method for bad debts. What is the amount of bad debts expense?

A) $80,000
B) $40,000
C) $16,800
D) $15,000

Question 41

Which of the following are two methods of estimating uncollectible receivables?

A) allowance method and amortization method
B) aging-of-accounts-receivable method and percent-of-sales method
C) gross-up method and direct write-off method
D) direct write-off method and percent-of-completion method

Question 42

A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see which customers the company will not collect from is known as the allowance method.

Question 43

The Allowance for Bad Debts can be calculated as a specific percentage of credit sales and is a contra account to Accounts Receivable.

Question 44

The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts Expense from Accounts Receivable.

Question 45

The percent-of-sales method computes bad debts expense as a percentage of net cash sales.

Question 46

The Allowance for Bad Debts account has a debit balance of $9,000 before the adjusting entry for bad debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging method, the company's management estimates that uncollectible accounts will be $15,000. What will be the amount of Bad debts expense reported on the income statement?

A) $4,000
B) $24,000
C) $6,000
D) $15,000

Question 47

The entry to write off an account receivable under the allowance method will:

A) reduce net income.
B) have no effect on net income.
C) increase total assets.
D) increase net income.

Question 48

GAAP requires most companies to use the:

A) direct write-off method to evaluate bad debts.
B) allowance method to evaluate bad debts.
C) amortization method to evaluate bad debts.
D) 360-day method to evaluate bad debts.

Question 49

The Allowance for Bad Debts account has a credit balance of $9,000 before the adjusting entry for bad debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging method, the company's management estimates that uncollectible accounts will be $15,000. What will be the balance of the Allowance for Bad Debts reported on the balance sheet?

A) $15,000
B) $14,900
C) $15,900
D) $14,100

Question 50

The allowance method violates the matching principle.

Question 51

Under both the allowance method and the direct-write off method of accounting for uncollectible accounts, the amount of bad debts expense is to be estimated at the end of each accounting period.

Question 52

The percent-of-receivables method computes bad debts expense as a percentage of accounts receivable.

Question 53

Which of the following are the two methods of accounting for uncollectible receivables?

A) direct write-off method and liability method
B) asset method and sales method
C) allowance method and liability method
D) allowance method and direct write-off method

Question 54

The percent-of-sales method to compute uncollectible accounts is also known as the balance sheet approach.

Question 55

The following information is from the records of Armadillo Camera Shop: $$\begin{array} { | l | r | } \hline \text { Accounts receivable, December } 31,2015 & \$ 20,000 \text { (debit) } \\\hline \text { Allowance for Bad Debts, December 31,2015 } & \\\hline \text { prior to adjustment } & 600 \text { (debit) } \\\hline \text { Net credit sales for 2015 } &95,000 \\\hline \text { Accounts written off as uncollectible during 2015 } & 350 \\\hline\end{array}$$ Bad debts expense is estimated by the aging-of-accounts-receivables method. Management estimates that $2,850 of accounts receivable will be uncollectible. Calculate the amount of net accounts receivable after the adjustment for bad debts.

A) $17,750
B) $17,150
C) $16,550
D) $13,000

Question 56

The Allowance for Bad Debts has a credit balance of $9,000 before the adjusting entry for bad debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging method, the company's management estimates that uncollectible accounts will be $15,000. What will be the amount of bad debts expense reported on the income statement?

A) $24,000
B) $6,000
C) $15,000
D) $9,000

Question 57

The Allowance for Bad Debts account has a credit balance of $2,000. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. What will be the amount of Bad Debts Expense reported on the income statement for 2015?

A) $5,000
B) $3,075
C) $2,875
D) $2,675

Question 58

The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debt expense. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. What will be the balance of the Allowance for Bad Debts reported on the balance sheet at December 31, 2015?

A) $7,275
B) $3,075
C) $7,000
D) $5,285

Question 59

Sun Inc. had completely written off the account of one of its old customers, Brad, in 2014 for $500. On January 21, 2015, Brad unexpectedly repaid his debt in full. The company uses the direct write-off method to account for uncollectible receivables. Journalize the entries required for Sun Inc. on January 21, 2015.

Question 60

The aging-of-receivables method is a balance sheet approach of estimating uncollectible accounts.

Question 61

At the beginning of 2015, Peter Dots has the following ledger balances: During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The ending balance in the Allowance for Bad Debts would be:

A) $5,000.
B) $6,500.
C) $6,400.
D) $7,000.

Question 62

The following information is from the 2015 records of Armand Camera Shop: $$\begin{array} { | l | r | } \hline \text { Accounts Receivable, December 31,2015 } & \$ 40,000 \text { (debit) } \\\hline \begin{array} { l } \text { Allowance for Bad Debts, December 31,2015 } \\\text { prior to adjustment }\end{array} & 1,500 \text { (debit) } \\\hline \text { Net credit sales for 2015 } & 175,000 \\\hline \text { Accounts written off as uncollectible during 2015 } & 15,000 \\\hline \text { Cash sales during 2015 } & 27,000 \\\hline\end{array}$$ Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $5,000 of accounts receivable will be uncollectible. Calculate the amount of bad debts expense for 2015.

A) $7,000
B) $6,500
C) $6,450
D) $5,250

Question 63

At the beginning of 2015, Peter Dots has the following ledger balances: During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The ending balance in Bad Debts Expense would be:

A) $20,000.
B) $40,000.
C) $28,000.
D) $27,000.

Question 64

On January 16, Whole Circle sold goods worth $5,000 to Smith on account. It could not collect cash from the customer, and finally decided to write off the account. Give journal entry to record the write-off assuming that the company uses the allowance method.

Question 65

On January 1st, 2015, Everlight Corp. has the following balances: During the year, Everlight has $150,000 of credit sales, collections of credit sales of $140,000, and write-offs of $3,000. It records bad debts expense at the end of the year using the aging-of-receivables method. At the end of the year, aging analysis produces a figure of $1,900, being the estimate of uncollectible accounts. Before the year-end entry to adjust the bad debts expense is made, the balance in the Allowance for Bad Debts expense would be:

A) debit of $1,800.
B) credit of $4,200.
C) zero balance.
D) debit of $3,000.

Question 66

A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. Smart Art uses the aging method to account for uncollectible account expense. It has estimated $200 as uncollectible at year-end. At the end of the year, what is the ending balance in the Bad Debts Expense account?

A) $1,150
B) $800
C) $200
D) $850

Question 67

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and decided to use a factor of 2% for their year-end adjustment of bad debts expense. At the end of the year, the balance of bad debts expense would be:

A) $150.
B) $800.
C) $250.
D) $1,450.

Question 68

The following information is from the 2015 records of Armand Camera Shop: $$\begin{array} { | l | r | } \hline \text { Accounts Receivable, December 31,2015 } & \$ 40,000 \text { (debit) } \\\hline \begin{array} { l } \text { Allowance for Bad Debts, December 31,2015 } \\\text { prior to adjustment }\end{array} & 1,500 \text { (debit) } \\\hline \text { Net credit sales for 2015 } & 175,000 \\\hline \text { Accounts written off as uncollectible during 2015 } & 15,000 \\\hline \text { Cash sales during 2015 } & 27,000 \\\hline\end{array}$$ Bad debts expense is estimated by the percent-of-sales method. The management estimates that 3% of net credit sales will be uncollectible. Calculate the amount of bad debts expense for 2015.

A) $5,250
B) $3,450
C) $2,250
D) $2,850

Question 69

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the aging-of-receivables method to account for bad debts expense, and estimated $500 as uncollectible at year end. Therefore, the ending balance in the Allowance for Bad Debts would be:

A) $150.
B) $800.
C) $200.
D) $500.

Question 70

Accounts receivable has a balance of $30,000 and the Allowance for Bad Debts has a credit balance of $3,000. The allowance method is used. What is the net realizable value before and after a $2,000 Account Receivable is written off?

A) $27,000; $27,000
B) $14,300; $14,300
C) $16,000; $15,940
D) $16,000; $16,000

Question 71

Accounts receivable has a balance of $5,000 and the Allowance for Bad Debts has a credit balance of $440. The allowance method is used. What is the net realizable value after a $160 account receivable is written off?

A) $4,400
B) $4,720
C) $4,560
D) $5,000

Question 72

At the beginning of 2015, Peter Dots has the following ledger balances: During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000, and $18,000 has been written off. At the end of the year, the company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The ending balance of Accounts Receivable would be:

A) $40,000.
B) $62,000.
C) $80,000.
D) $18,000.

Question 73

The following information is from the 2015 records of Armand Camera Shop: $$\begin{array} { | l | r | } \hline \text { Accounts Receivable, December 31,2015 } & \$ 40,000 \text { (debit) } \\\hline \begin{array} { l } \text { Allowance for Bad Debts, December 31,2015 } \\\text { prior to adjustment }\end{array} & 1,500 \text { (debit) } \\\hline \text { Net credit sales for 2015 } & 175,000 \\\hline \text { Accounts written off as uncollectible during 2015 } & 15,000 \\\hline \text { Cash sales during 2015 } & 27,000 \\\hline\end{array}$$ Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $5,000 of accounts receivable will be uncollectible. Calculate the Allowance for Bad Debts after the adjustment for bad debt expense at December 31, 2015.

A) $5,250
B) $6,500
C) $7,000
D) $5,000

Question 74

A company reports net accounts receivable of $150,000 on its December 31, 2015 balance sheet. The Allowance for Bad Debts has a credit balance of $15,000. What is the balance in Accounts Receivable?

A) $155,000
B) $150,000
C) $165,000
D) $135,000

Question 75

At the beginning of 2015, Peter Dots has the following ledger balances: During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts expense using the aging method. The amount estimated as uncollectible was $25,000. The ending balance in the Allowance for Bad Debts would be:

A) $38.000.
B) $18,000.
C) $25,000.
D) $30,000.

Question 76

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and decided to use a factor of 2% for their year-end adjustment of bad debts expense. At the end of the year, what is the ending balance in Accounts Receivable?

A) $4,000
B) $3,600
C) $3,350
D) $3,200

Question 77

The following information is from the 2015 records of Armand Camera Shop: $$\begin{array} { | l | r | } \hline \text { Accounts Receivable, December 31,2015 } & \$ 40,000 \text { (debit) } \\\hline \begin{array} { l } \text { Allowance for Bad Debts, December 31,2015 } \\\text { prior to adjustment }\end{array} & 1,500 \text { (debit) } \\\hline \text { Net credit sales for 2015 } & 175,000 \\\hline \text { Accounts written off as uncollectible during 2015 } & 15,000 \\\hline \text { Cash sales during 2015 } & 27,000 \\\hline\end{array}$$ Bad debts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. The balance of the Allowance for Bad Debts after adjustment will be:

A) $7,000.
B) $3,450.
C) $2,850.
D) $3,750.

Question 78

At the beginning of 2015, Peter Dots has the following ledger balances: During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts expense using the aging method. The amount estimated as uncollectible was $25,000. The ending balance in Bad Debts Expense would be:

A) $38,000.
B) $25,000.
C) $13,000.
D) $7,000.

Question 79

The Allowance for Bad Debts account has a debit balance of $6,000 before the adjusting entry for bad debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger, the company's management estimates that uncollectible accounts will be $10,000. What will be the amount of the adjustment in the Allowance for Bad Debts account?

A) $15,250
B) $10,000
C) $14,900
D) $16,000

Question 80

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and decided to use a factor of 2% for their year-end adjustment of bad debts expense. The ending balance in Allowance for Bad Debts account would be:

A) $150.
B) $800.
C) $250.
D) $1,450.