Deck 18: Receivables

Question 1

The Allowance for Doubtful Debts account has a balance at the start of the year of $1000.At the end of the year debts of $990,including $90 GST,are to be written off and the Allowance for Doubtful Debts is to be adjusted to 10% of the closing Accounts Receivable balance of $22 000 including $2000 GST).The amount for Bad and Doubtful Debts appearing in the Income statement for the year will be:

A)$2000
B)$1900
C)$2100
D)$2200

Answer 1

B

Question 2

Which of these would not be classified as 'other receivables'

A)Loans to directors
B)Interest receivable
C)Amounts receivable from the sale of non-current assets
D)Income owing from a credit sale

Answer 2

D

Question 3

The statement that is incorrect is:

A)If a debtor fails to pay the receivable on its due date this means that the debt is bad
B)An outstanding debt may be turned over to a collection agency
C)Bad debts should be deducted as an expense in the same accounting period in which the credit sale is recognised
D)Bad debts are a cost of selling on credit

Answer 3

A

Question 4

While reviewing the books of Edberg Pest Control Service you discover that no adjusting entry was made for estimated bad debts traceable to sales in 2012 the company's first year of operation).Assuming this error is not corrected which of the following is true at year-end 2012?

A)Assets are understated,profit is overstated
B)Liabilities are overstated,profit is understated
C)Assets are correct,profit is overstated
D)Assets are overstated,profit is overstated

Question 5

The text classifies accounts receivables into several broad types.Those types are:

A)Accounts receivable,bills receivable,other receivables
B)Debtors,accounts receivables,promissory notes
C)Trade debtors,other debtors,sundry debtors
D)Promissory notes,accounts receivable,prepayments

Question 6

The statement concerning the accounting treatment of bank issued credit card sales that is true is:

A)The treatment of bank issued credit card sales is the same as the treatment of non-bank issued credit card sales
B)A 'merchant fee' for the month's sales is debited to the firm's bank statement at month-end
C)The business does not retain a copy of the transaction slip
D)The sale is recorded like a credit sale in the books of the seller

Question 7

When a credit sale involving GST is recorded,the sales account:

A)Includes the GST
B)Does not include the GST
C)Has the GST deducted
D)Is input taxed

Question 8

In relation to the direct write-off method of accounting for bad debts,it is not true that:

A)Bad debts are charged as an expense at the time an account is determined to be uncollectable
B)The entry to write off bad debts is debit Bad Debts Expense,debit GST collected,credit Accounts Receivable
C)There is no contra asset account for estimated doubtful debts
D)Bad debts expense is recorded in the same period in which its related sales revenue is included as income

Question 9

On 31 December 2012 Sicuro Enterprises decided that it needed to finally write off as a bad debt a receivable of $4400 including $400 GST from Simone Pty Ltd in liquidation).If Sicuro uses the allowance method the entry to achieve the write off is:

A)Debit Bad Debts Expense $4400; credit Accounts Receivable $4400
B)Debit Allowance for Doubtful Debts $4000,debit GST Collections $400; credit Accounts Receivable $4400
C)Debit Bad Debts Expense $4400; credit GST Collections $400; credit Accounts Receivable $4000
D)Debit Allowance for Doubtful Debts $4000; credit Bad Debts Expense $4000

Question 10

The statement concerning the receivables turnover ratio that is true is:

A)It is calculated as total sales divided by average receivables
B)A change in the ratio from 2.8 times to 3.1 times is an unfavourable change
C)It is a measure of how many times the average receivables balance is converted into cash in a year
D)If the receivables turnover ratio is divided into 365 this gives the average number of days it takes to sell receivables

Question 11

How many of these are an issue in a firm's management of its accounts receivable?
.Deciding which customers to offer credit to
.Minimising the costs of carrying accounts receivables
.Following up slow paying customers

A)0
B)1
C)2
D)3

Question 12

The statement concerning the Allowance for Doubtful Debts account that is not true is:

A)Allowance for Doubtful Debts is used to adjust receivables for estimated bad debts because individual debtor's balances cannot be removed from the ledger unless there is indisputable evidence they are bad
B)Allowance for Doubtful Debts is a contra-asset account designed to reduce receivables to estimated realisable value
C)Allowance for Doubtful Debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt
D)Allowance for Doubtful normally has a credit balance

Question 13

The selling of accounts receivable as a means of quickly raising cash,minimising debt collecting expenses and minimising bad debt losses is known as:

A)Debt factoring
B)Ageing of debtors
C)Establishing a bill receivable
D)Discounting

Question 14

The statement that is not true in relation to bad debts recovered is:

A)The accounts receivable should be re-established to maintain a complete history of the customer's activity and restore their credit rating
B)The entry to reinstate the accounts receivable is debit Accounts Receivable and credit Bad Debts Recovered
C)The entry made following reinstatement of the account receivable to record the recovery is debit Bad Debts recovered and credit Accounts Receivable
D)The recovery is recorded by effectively reversing the entry originally made to write off the receivable

Question 15

Jarrod Co has the following balances in its general ledger:
$\begin{array} { l r } \text { Accounts receivable } & \$ 42000 \\\text { Less Allowance for doubtful debts } & - \underline { 4000 } \\& \$ 38000\end{array}$
If a debt for $1 000,previously provided for as doubtful,is written off as bad,what is the estimated net realisable value of accounts receivable after the write off?

A)$37 000
B)$39 000
C)$41 000
D)$38 000

Question 16

These are the balances for Johnson Co at 12 December: Accounts Receiv able $\quad \$ 23,452$
Allowance for Doubtful Debts $\quad 1,252 \quad \$ 22,200$ If an account for $300 is written off on 15 December what is the estimated realisable value of Accounts Receivable after the write-off? Ignore any GST adjustment for the purposes of this question.

A)$20 452
B)$25 200
C)$22 200
D)$19 200

Question 17

Simpson Inc recorded sales of $180 000 during the year net of GST).Of these,$80 000 were on credit.Bad debts have averaged one half of one percent of credit sales.The entry to estimate bad debt expense for the year is:

Question 18

The general journal entry to provide for estimated bad debts under the allowance method is:

A)Debit allowance for doubtful debts; credit bad debts expense
B)Debit bad debts expense; credit allowance for doubtful debts
C)Debit accounts receivable; credit bad debts expense
D)Debit bad debts expense; credit accounts receivable

Question 19

Amaud Company calculates that this year's estimated bad debts expense will be $7500.When Amaud makes the adjusting entry the effect will be:

Question 20

It is not true that:

A)If the firm is too generous in extending credit bad debts will occur
B)If credit policies are too strict valuable customers may be lost
C)A credit report from a credit rating agency is an important method of checking on customer's credit history
D)Generally firms offer too much credit to customers

Question 21

The main problem that exists in valuing accounts receivables is:

A)keeping track of the amount that is owed by individual debtors
B)estimating the amount of receivables that will become bad
C)making adjustments for goods returned
D)reconciling the debtors control account with the debtor's subsidiary ledger

Question 22

When the balance sheet approach is used to estimate bad debts expense a schedule of debts is prepared.The preparation of this schedule is called the a___________ of accounts receivable.

Question 23

Cheung Ltd has an account receivable for $12 000 from R.Morris that is overdue.Morris requests a 60-day extension of the payment date and Cheung Ltd agrees by accepting a fixed 60-day,12% promissory note in exchange for the accounts receivable.Cheung Ltd makes which entry to record the collection of the promissory note from R.Morris including interest?

A)Debit Cash $12 236,71,debit Unearned Interest $236.71; credit Bills Receivable $12 236.71,credit Interest Revenue $236.71
B)Debit Cash $12 236.71; credit Accounts Receivable $12 236.71
C)Debit Cash $12 236.71; credit Bills Receivable $12 236.71
D)Debit Cash $12 236,71; credit Bills Receivable $12 000,credit Interest Revenue $236.71

Question 24

Which of these is not a reason a business would be prepared to accept a bill of exchange in settlement of a debt?

A)If a legal dispute arises the bill represents a legal,written acknowledgment of the debt and its amount
B)Because a bill of exchange has government backing
C)A bill is interest-bearing and thereby produces interest for the business granting credit
D)A bill is more easily converted into cash than accounts receivable

Question 25

The two methods of estimating bad debts expense for a given period are the balance sheet method and the i_________ statement method.

Question 26

If XYZ issued a 60 day promissory note for $40 000 at an agreed interest rate of 7% per annum,the amount of interest payable,to the nearest $,is:

A)$2 800
B)$1 400
C)$460
D)Cannot be calculated without more information

Question 27

Jolly Roger's Seafood Restaurant had bank issued credit card sales of $3,300 including GST.The entry to record the sales is:

Question 28

The statement concerning bank issued credit card fees merchant fees)that is untrue is:

A)They are calculated by the bank once a month
B)They are calculated as a flat charge regardless of sales
C)They are recorded by the firm as a debit to the merchant fees expense account and a credit to bank
D)Credit card fees are subject to GST

Question 29

How many of these are internal controls relating to accounts receivable?
.Bad debts write-offs are authorised by a responsible officer.
.Monthly statements of account are sent to customers.
.The control account and the subsidiary ledger are regularly reconciled.

A)None
B)One
C)Two
D)Three

Question 30

The statement concerning discounting a bill receivable that is incorrect is:

A)To be discounted,before it matures,a bill receivable may be sold to a bank in exchange for cash
B)In calculating the amount of discount on sale of the bill the discount rate is applied to its maturity value for the period it is held by the discounter
C)One of the disadvantages of a bill of exchange is the relative difficulty with which it can be converted into cash
D)The maturity value of the bill less the discount deducted by the bank is paid to the endorser of the bill by the bank

Question 31

The maturity value of a bills receivable includes:

A)Interest only
B)Principal only
C)Principal and interest
D)Principal and interest plus a bonus payment

Question 32

The sale of accounts receivable to a firm who will then collect the debts on their own behalf is known as f_________________.

Question 33

A bill of exchange which represents the right to receive cash in the future is a:

A)Bills payable
B)Bills receivable
C)Sundry debtor
D)Credit card

Question 34

In calculating the discount on a bill of exchange the discount rate is applied to what?

A)The maturity value of the bill for the period it is held by the discounter
B)The principal for the period it is held by the discounter
C)The face value
D)The interest for the period it is held by the discounter

Question 35

When writing off an account receivable as a bad debt,using the allowance method,a debit/credit ____________ is made to the Allowance for Doubtful Debts account and a debit/credit _____________ is made to Accounts Receivable.

Question 36

The following general journal entry is made on June 1 in the books of Jo Jo. $\begin{array}{lr}&Dr&Cr\\\text { Bills receivable }&\$8197.26\\\text { Unearned interest } & &\$ 197.26 \\\text { Accounts receivable } && \$ 8000.00\end{array}$ To record bills receivable $8 000 x 10% x 90 days/365 days.
The adjusting entry required for interest at balance day on 30 June is:

A)Debit unearned interest $65.75; credit interest revenue 65.75B)Debit interest revenue $65.75; credit unearned interest $65.75C)Debit unearned interest $131.51; credit interest revenue 131.51
D)Debit bank $65.75; credit interest revenue $65.75

Question 37

Allowance for Doubtful Debts is a c___________ asset account.

Question 38

The valuation of accounts receivables at gross receivables less anticipated future bad debts is known as:

A)gross value
B)fair value
C)discounted value
D)maturity value

Question 39

Which of these is the most likely way a bills receivable would be settled?

A)Passed on or negotiated to a third party
B)Cashed at a bank before its due date discounted)
C)The full value received before the due date
D)The full value received at maturity.

Question 40

Cheung Ltd has an account receivable for $12 000 from R.Morris that is overdue.Morris requests a 60-day extension of the payment date and Cheung Ltd agrees by accepting a fixed 60-day,12% promissory note in exchange for the accounts receivable.The entry Cheung Ltd makes on receipt of the note is:

A)Debit Accounts Receivable $12 000,debit Unearned Interest $236.71; credit Bills Receivable $12,236.71
B)Debit Bills Receivable $12 236,71; credit Accounts Receivable $12 000,credit Unearned Interest $236.71
C)Debit Bills Receivable $12,000; credit Accounts Receivable $12 000
D)Debit Bills Receivable $12 236,71; credit Accounts Receivable $12 000,credit Interest Revenue $236.71

Question 41

The holder of a bill receivable can collect the full amount of the bill at maturity date or can obtain the money sooner by arranging to d____________ the bill.

Question 42

A promissory note can be issued as a guarantee to pay a receivable at a later date.The person making the promise to pay by signing the note is the maker/payee _________ and the person to whom the payment is to be made is called the maker/payee ____________.

Question 43

The maturity/discounted value of a short-term,interest-bearing,bills receivable is equal to the sum of the note's face value plus interest.

Question 44

A measure of how many times average debtor's balances are turned into cash in a year is the Receivables T___________ Ratio.

Question 45

When a bad debt that has been written off is recovered an account called Bad Debts Recovered is credited/debited.