Chapter 8

Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method? A)Allowance for Doubtful Accounts 100 Accounts Receivable 100 B)Allowance for Doubtful Accounts 100 Bad Debts Expense 100 C)Bad Debts Expense 100 Accounts Receivable 100 D)Accounts Receivable 100 Bad Debts Expense 100

A. Allowance for Doubtful Accounts 100 Accounts Receivable 100

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest? A)A note receivable B)An account receivable C)Past-due accounts receivables D)A trade receivable

A. A note receivable

Which one of the following is the correct presentation of Accounts Receivable and its contra account on the balance sheet? A. Accounts Receivable $642,000 Less: Allowance for Doubtful Accounts (2,000) $640,000 B. Accounts Receivable $642,000 Plus: Allowance for Doubtful Accounts 2,000 $644,000 C. Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) $625,000 D. Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) Less: Allowance for Doubtful Accounts (2,000) $623,000

A. Accounts Receivable $642,000 Less: Allowance for Doubtful Accounts (2,000) $640,000

A 90-day promissory note is issued on September 15. What is the note's maturity date? A)December 14 B)December 15 C)December 13 D)December 16

A. December 14 -You must count the number of days. The date the note is issued is omitted, while the due date is counted. September has 15 days beginning with September 16 through the 30. October has 31 days. November has 30 days. There are 14 days in December during the note's term to total to 90 days

Under the allowance method, writing off an uncollectible account a. affects only balance sheet accounts. b. affects both balance sheet and income statement accounts. c. affects only income statement accounts. d. is not acceptable practice.

A. affects only balance sheet accounts.

The net amount expected to be received in cash from receivables is termed the a. cash realizable value. b. cash-good value. c. gross cash value. d. cash-equivalent value.

A. cash realizable value

Which one of the following statements is true? A)Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period. B)Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period. C)Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period D)Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period.

B. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.

What type of receivables result from sales transactions? A)Non-trade receivables B)Trade receivables C)Long-term receivables D)Other receivables

B. Trade receivables

When is a receivable recorded by a service organization? A)When the customer pays B)When service is provided on account C)When the related expenses are incurred D)When the bill is sent to the customer

B. When service is provided on account

The Allowance for Doubtful Accounts is necessary because A. uncollectible accounts that are written off must be accumulated in a separate account. B. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay. C. a liability results when a credit sale is made. D. management needs to accumulate all the credit losses over the years

B. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

Accounts receivable are valued and reported on the balance sheet a. in the investments section. b. at gross amounts less sales returns and allowances. c. at cash realizable value. d. only if they are not past due.

C. At cash realizable value.

Which one of the following is not one of the principles of managing accounts receivable? A. Determining from which vendor credit should be requested B. Establishing a payment period C. Monitoring collections D. Accelerating cash receipts from receivables when necessary

C. Determining from which vendor credit should be requested -Requesting credit from a vendor is a concern for dealing with accounts payable. Determining to whom to extend credit is a principle of managing accounts receivable.

The account Allowance for Doubtful Accounts is classified as a(n) A. contra account to Accounts Receivable. B. liability. C. contra account of Bad Debt Expense. D. expense.

C. contra account of Bad Debt Expense.

Under the allowance method, Bad Debt Expense is recorded a. when an individual account is written off. b. when the loss amount is known. c. for an amount that the company estimates it will not collect. d. several times during the accounting period.

C. for an amount that the company estimates it will not collect

Three accounting issues associated with accounts receivable are A. depreciating, returns, and valuing. B. depreciating, valuing, and collecting. C. recognizing, valuing, and accelerating collections. D. accrual, bad debts, and accelerating collections.

C. recognizing, valuing, and accelerating collections.

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method? A)Bad Debts Expense account is debited. B)Loss on Accounts Receivable account is debited C)Accounts Receivable account is debited. D)Allowance for Doubtful Accounts is debited.

D. Allowance for Doubtful Accounts is debited -The debit account is Allowance for Doubtful Accounts, and Accounts Receivable is credited to remove the customer's account.

Receivables are A. shown on the income statement at cash realizable value. B. always the result of revenue recognition. C. one of the most liquid assets and thus are always considered current assets. D. claims that are expected to be collected in cash

D. Claims that are expected to be collected in cash