FA Chapter 5 Rawr

All Star Auto has an accounts receivable balance after posting net collections from customers for 2013 of $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts receivable and estimate for uncollected account percentages as follows: $90,000 Current at 2% $50,000 1-30 days past due at 5% $30,000 31-60 days past due at 10% $10,000 60+ days past due at 25% The net realizable value of the accounts receivable is a. $170,200 b. $172,700 c. $180,000 d. $173,200

a. $170,200

If a company uses the allowance method to account for doubtful accounts, when will the company's Stockholders' equity decrease? a. At the end of the accounting period when an adjusting entry for bad debts is recorded b. When the accounts receivable amount becomes past due c. At the date a customer's account is determined to be uncollected d. At the date a customer's account is written off

a. At the end of the accounting period when an adjusting entry for bad debts is recorded

Beginning accounts receivable were $200,000 and ending accounts receivable were $300,000. Assuming cash collections totaled $1,100,000, what were credit sales? a. $1,100,000 b. $1,200,000 c. $1,300,000 d. $1,500,000

b. $1,200,000

A company's accounts receivable balance after posting net collections from customers for the current year is $150,000. Management feels that uncollected accounts should be based on the following aging of accounts receivable and uncollected percentages. There are $100,000 that are 1-30 past due at 2% and $50,000 that are 31 to 60 days past due at 10%. The net realizable value of the accounts receivable is a. $148,000 b. $143,000 c. $150,000 d. $147,500

b. $143,000

Which allowance method approach is considered to be an income statement approach to estimating bad debts? a. The direct write off method b. The percentage of net credit sales approach c. The percentage of accounts written off approach d. The percentage of accounts receivable approach

b. The percentage of net credit sales approach

Which one of the following is an accurate description of the Allowance for Doubtful Accounts? a. Liability Account b. Expense Account c. Contra Account d. Revenue Account

c

What is the distinguishing characteristic between accounts receivable and notes receivable? a. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable result from credit sale transactions for service companies. b. Accounts receivable require payment of interest while notes receivable does not have payment of interest. c. Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid. d. Accounts receivable are usually current assets while notes receivable are usually long-term assets.

c. Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

A company receiving payment of a $20,000 accounts receivable within 10 days with terms of 2/10, n/30, would record a sales discount of: a. 10% of $20,000 b. (100% - 2%) x $20,000 c. (100% - 10%) x $20,000 d. 2% of $20,000

d. 2% of $20,000

All of the following are true for a company that uses the allowance method of accounting for bad debts, EXCEPT: a. It uses a contra-asset account called the allowance for doubtful accounts. b. It reduces its accounts receivable balance when the account is written off. c. It reports accounts receivable in the balance sheet at their net realizable value. d. It records bad debt expense each time an account is determined to be uncollectible.

d. It records bad debt expense each time an account is determined to be uncollectible.

If a company uses the direct write-off method of accounting for bad debts, a. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollected accounts. b. It establishes an estimate for the allowance for doubtful accounts. c. When an account is written off, total assets will stay the same. d. It will record bad debt expense only when an account is determined to be uncollected.

d. It will record bad debt expense only when an account is determined to be uncollected.