ch 9

A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is a. $11,200. b. $10,300. c. $9,700. d. $10,000.

$10,300.

maturity value

The amount that is due at the maturity or due date of a note.

Allowance for Doubtful Accounts

The contra asset account for accounts receivable.

net realizable value

The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.

When comparing the direct write-off and allowance methods, which of the following statements applies to the direct write-off method? a. Primary users are large companies and those with a large amount of receivables. b. The result is based on either (1) a percentage of sales or (2) an analysis of receivables. c. The expense is recognized when the account is written off rather than in the period of sale. d. An allowance account is used.

The expense is recognized when the account is written off rather than in the period of sale.

allowance method

The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off.

direct write-off method

The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless.

bad debt expense

The operating expense incurred because of the failure to collect receivables.

aging the receivables

The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age.

The party making the promise to pay the promissory note is the a. payee. b. maker. c. None of these choices are correct d. lender.

maker.

A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is a. $11,200. b. $10,000. c. $9,980. d. $10,200.

$10,200.

A 90-day, 10% note for $9,000, dated April 15, is received from a customer on account. The face value of the note is a. $8,100. b. $9,225. c. $9,000. d. $9,900.

$9,000.

When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method? a. Primary users are small companies and those with a small amount of receivables. b. The result is based on either (1) a percentage of sales or (2) an analysis of receivables. c. The expense is recognized when the account is written off rather than in the period of sale. d. No allowance account is used.

The result is based on either (1) a percentage of sales or (2) an analysis of receivables.

The rule is that an account becomes uncollectible a. when the debtor fails to pay a note on the due date. b. upon receipt of a certified letter from the debtor. c. There is no general rule as to when an account becomes uncollectible. d. at the end of the fiscal year.

There is no general rule as to when an account becomes uncollectible.

Two financial measures that are especially useful in evaluating efficiency in collecting receivables are the a. accounts receivable turnover and the ratio of cash to monthly cash expenses. b. number of days' sales in receivables and the profit margin on sales. c. accounts receivable turnover and the number of days' sales in receivables. d. accounts receivable turnover and the profit margin on sales.

accounts receivable turnover and the number of days' sales in receivables.

On December 1, Bright Company receives a 6% interest-bearing note from Galvalume Company to settle a $20,000 account receivable. The note is due in 3 months. At December 31, Bright should record interest revenue of a. $200. b. $100. c. $600. d. $0.

$100.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at 2% of sales. If sales are $600,000, the amount of the adjusting entry to record the provision for doubtful accounts is a. None of these answers are correct. b. $12,000. c. $12,500. d. $11,500.

$12,000.

If Accounts Receivable for Crawford Company is equal to $172,000 and the Allowance for Doubtful Accounts is $4,500 at December 31, 2016, what is the amount of net receivables shown on Crawford's balance sheet at December 31, 2016? a. $176,500 b. $167,500 c. Cannot be determined from the information given. d. $172,000

$167,500

If Accounts Receivable for Sally Company is equal to $56,850 and the Allowance for Doubtful Accounts is $2,375 at December 31, 2016, what is the amount of net receivables shown on Sally's balance sheet at December 31, 2016? a. $54,475 b. $56,850 c. Cannot be determined from the information given. d. $59,225

$54,475

Using the following end-of-year information, calculate the number of days' sales in receivables for Year 2.? Year 2: sales are $82,500; average accounts receivable is $11,000. Year 1: sales are $78,000; average accounts receivable is $10,000. Round to one decimal place. a. 7.8 b. 48.7 c. 7.5 d. 46.8

48.7

Using the following end-of-year information, calculate accounts receivable turnover for Year 2.​ Year 2: sales are $82,500; average accounts receivable is $11,000. Year 1: sales are $78,000; average accounts receivable is $10,000. Round to one decimal place. a. 7.5 b. 48.7 c. 46.8 d. 7.8

7.5

account receivable

A claim against the customer created by selling merchandise or services on credit.

notes receivable

A customer's written promise to pay an amount and possibly interest at an agreed-upon rate.

dishonored note receivable

A note that the maker fails to pay on the due date.

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited when a customer's account is written off as uncollectible? a. Allowance for Doubtful Accounts. b. Uncollectible Accounts Payable. c. Accounts Receivable. d. Bad Debt Expense.

Accounts Receivable.

receivables

All money claims against other entities, including people, business firms, and other organizations.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful accounts? a. Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500. b. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500. c. Debit Allowance for Doubtful Accounts, $15,500; credit Bad Debt Expense, $15,500. d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500.

Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $16,000. Which of the following entries records the proper provision for doubtful accounts? a. Debit Bad Debt Expense, $16,500; credit Allowance for Doubtful Accounts, $16,500. b. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500. c. Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500. d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500.

Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500.

Which of the following methods and bases of accounting for uncollectible accounts receivable is inconsistent with the proper application of matching? a. Aging of receivables allowance method b. Direct write-off method c. Percentage of receivables basis d. None of these choices are correct.

Direct write-off method

The numerator in the number of days' sales in receivables calculation is a. accounts receivable ending balance. b. accounts receivable beginning balance. c. None of these choices are correct. d. average daily sales.

None of these choices are correct.

accounts receivable turnover

The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.

number of days' sales in receivables

The relationship between sales and accounts receivable, computed by dividing the net accounts receivable at the end of the year by the average daily sales.

Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and Bad Debt Expense is estimated at 2% of sales. If sales are $500,000, the adjusting entry for uncollectible accounts would include: a. a credit to Allowance for Doubtful Accounts of $10,000. b. a credit to Allowance for Doubtful Accounts of $10,500. c. None of these choices are correct. d. a credit to Allowance for Doubtful Accounts of $9,500.

a credit to Allowance for Doubtful Accounts of $10,000.

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the allowance method would include: a. a debit to Bad Debt Expense of $3,650. b. a debit to Allowance for Doubtful Accounts of $3,650. c. a credit to Allowance for Doubtful Accounts of $3,650. d. a credit to Cash of $3,650.

a credit to Allowance for Doubtful Accounts of $3,650.

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the direct write-off method would include: a. a credit to Bad Debt Expense of $3,650. b. a debit to Bad Debt Expense of $3,650. c. a debit to Allowance for Doubtful Accounts of $3,650. d. a credit to Cash of $3,650.

a credit to Bad Debt Expense of $3,650.

If Ohio Company received $2,250 as partial payment on the $5,500 account of Carson Mueller Company and wrote off the remaining balance as uncollectible, the only difference between recording the entry under the direct write-off method and the allowance method (assuming that an adequate allowance account had been set up) would be: a. a debit to Cash for $2,250 under the direct method rather than a credit to Cash for $2,250 under the allowance method. b. a credit to Accounts Receivable for $3,250 under the direct method rather than a credit to Allowance for Doubtful Accounts for $3,250 under the allowance method. c. a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Accounts Receivable for $3,250 under the allowance method. d. a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Allowance for Doubtful Accounts for $3,250 under the allowance method.

a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Allowance for Doubtful Accounts for $3,250 under the allowance method.

The two methods of accounting for uncollectible receivables are the direct method and the __________ method. a. interest b. allowance c. equity d. cost

allowance

Under the allowance method of accounting for uncollectible accounts, Bad Debts Expense is debited a. when an account is determined to be worthless. b. whenever a predetermined amount of credit sales has been made. c. when a credit sale is past due. d. at the end of each accounting period.

at the end of each accounting period.

The number of days' sales in receivables is determined by dividing a. average accounts receivable by sales. b. average accounts receivable by average daily sales. c. None of these choices are correct. d. the number of days in a year by accounts receivable.

average accounts receivable by average daily sales.

Under the direct write-off method a. bad debt is recorded when specific customer accounts are determined to be uncollectible. b. sometimes the allowance account is used. c. primary users are large companies with large amounts of receivables. d. estimates are used.

bad debt is recorded when specific customer accounts are determined to be uncollectible.

All receivables that are expected to be realized within a year are reported in the __________ section of the balance sheet. a. current assets b. investments c. fixed assets d. cash

current assets

A note receivable due in 12 months is listed on the balance sheet under the caption a. fixed assets. b. long-term liabilities. c. investments. d. current assets.

current assets.

An account receivable due in 12 months is listed on the balance sheet under the caption a. current assets. b. long-term liabilities. c. fixed assets. d. investments.

current assets.

Receivables are _________ on the __________, which are listed in order of ____________. a. current liabilities; balance sheet; size b. current assets; balance sheet; liquidity c. current liabilities; balance sheet; due date d. current assets; balance sheet; importance

current assets; balance sheet; liquidity

Flora Co. uses the allowance method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be as follows: a. debit Accounts Receivable; credit Bad Debt Expense. b. debit Bad Debt Expense; credit Allowance for Doubtful Accounts. c. debit Sales Returns and Allowances; credit Accounts Receivable. d. debit Allowance for Doubtful Accounts; credit Accounts Receivable.

debit Allowance for Doubtful Accounts; credit Accounts Receivable.

Extra Co. uses the direct write-off method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be as follows: a. debit Sales Returns and Allowances; credit Accounts Receivable. b. debit Bad Debt Expense; credit Accounts Receivable. c. debit Accounts Receivable; credit Bad Debt Expense. d. debit Bad Debt Expense; credit Allowance for Doubtful Accounts.

debit Bad Debt Expense; credit Accounts Receivable.

The journal entry to record a note received from a customer to apply on account is a. debit Cash; credit Notes Receivable. b. debit Notes Receivable; credit Cash. c. debit Accounts Receivable; credit Notes Receivable. d. debit Notes Receivable; credit Accounts Receivable.

debit Notes Receivable; credit Accounts Receivable.

Other disclosures related to receivables are reported a. in the financial statement notes. b. either on the face of the financial statements or in the financial statement notes. c. on the face of the financial statements. d. on the income statement.

either on the face of the financial statements or in the financial statement notes.

Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because a. uncollectible accounts that are written off must be accumulated in a separate account. b. a liability results when a credit sale is made. c. collection agencies use this account to accumulate attempts to collect worthless balances. d. estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected.

estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected.

Companies may sell their receivables. This practice is called a. dumping. b. hedging. c. factoring. d. expensing.

factoring.

The direct write-off method is required a. where receivables are a large part of the current assets. b. by GAAP. c. for companies that factor their receivables. d. for federal income tax purposes.

for federal income tax purposes.

The number of days' sales in receivables a. measures the number of times the receivables turn over each year. b. is not used. c. is an estimate of the length of time the receivables have been outstanding. d. is Average Receivables / Sales.

is an estimate of the length of time the receivables have been outstanding.

Accounts receivable turnover is calculated by dividing a. average accounts receivable by sales. b. days' sales in receivables by accounts receivable ending balance. c. sales by average accounts receivable. d. average accounts receivable by average daily sales.

sales by average accounts receivable.

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to record the cash receipt after the account has been reinstated under the direct write-off method a. includes a credit to Bad Debt Expense of $3,650. b. is the same as it would be under the allowance method. c. includes a debit to Allowance for Doubtful Accounts of $3,650. d. includes a credit to Cash of $3,650.

is the same as it would be under the allowance method.

The receivable that is usually evidenced by a formal instrument of credit is a(n) a. note receivable. b. intangible receivable. c. income tax receivable. d. accounts receivable.

note receivable.

The direct write-off method records bad debt expense a. only when an account is judged to be worthless. b. at the end of each reporting period. c. never. d. at the point of sale.

only when an account is judged to be worthless.

The most common transaction for creating receivables is a. buying fixed assets on credit. b. selling merchandise or services on credit. c. buying merchandise on credit. d. selling fixed assets on credit.

selling merchandise or services on credit.

The Allowance for Doubtful Accounts is a. added to Accounts Receivable. b. subtracted from Cash. c. subtracted from Notes Receivable. d. subtracted from Accounts Receivable.

subtracted from Accounts Receivable.

In the current asset section of the balance sheet, receivables are usually listed in order a. that they can be turned into cash. b. alphabetically. c. of size. d. of due date.

that they can be turned into cash.

A primary weakness of the direct write-off method is that a. the expense of a bad debt is not matched to the period that generated the uncollectible sale amount. b. it understates accounts receivable on the balance sheet. c. it is based on estimates. d. it is too difficult for many companies to use.

the expense of a bad debt is not matched to the period that generated the uncollectible sale amount.

The maturity value of a promissory note is a. the discounted value of the note. b. the face value of the note. c. the face value of the note plus the interest due to the maturity date. d. its realizable value.

the face value of the note plus the interest due to the maturity date.

The direct write-off method is used by all of the following businesses except a. those that have receivables as a large part of their current assets. b. those that sell certain kinds of merchandise, like restaurants or convenience stores. c. those that sell most of their goods or services for cash. d. those that accept only MasterCard or VISA for sales other than cash.

those that have receivables as a large part of their current assets.

Under the allowance method, when a specific account is written off a. net income will decrease. b. total assets will be unchanged. c. total assets will decrease. d. total assets will increase.

total assets will be unchanged.

Under the direct write-off method, when a specific account is written off a. total assets will increase. b. total assets will be unchanged. c. net income will increase. d. total assets will decrease.

total assets will decrease.

Notes and accounts receivable that result from sales transactions are sometimes called a. trade receivables. b. fixed assets. c. current liabilities. d. intangible assets.

trade receivables.

Other receivables do not include a. taxes receivable. b. interest receivable. c. officers and employees receivable. d. trade receivables.

trade receivables.