ACCT Ch 8 Test Bank
When using the allowance method, year-end adjustments for bad debt expense must be made. True, False
True
Accounts receivable are valued and reported on the balance sheet in the investments section. at gross amounts less sales returns and allowances at net realizable value. only if they are not past due.
at net realizable value.
When the allowance method is used to account for bad debts, the write-off of an account receivable results in an expense at the time of write-off. True, False
False
When using the allowance method, bad debt expense is recorded when an individual customer defaults. True, False
False
When using the direct write-off method, year-end adjustments for bad debt expense must be made. True, False
False
The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies. True, False
True
The basic formula for computing interest on an interest-bearing note is the face value of note × annual interest rate x time in terms of one year. True, False
True
The direct write off method of accounting for bad debts violates the matching principle. True, False
True
The direct write-off method of recognizing uncollectible accounts is not in accordance with good accounting practice. True, False
True
The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Revenue. True, False
True
The interest rate on a note is always expressed as an annual rate. True, False
True
The two key parties to a note are the maker and the payee. True, False
True
Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected. True, False
True
Under the allowance method, the net realizable value of receivables is the same both before and after an account has been written off. True, False
True
Under the direct write-off method, no attempt is made to match bad debt expense to sales revenues in the same accounting period. True, False
True
Which of the following would probably be the most significant type of a claim held by a company? notes receivable non-trade receivables accounts receivable interest receivable
accounts receivable
Receivables are one of the most liquid assets and thus are always considered current assets claims that are expected to be collected in cash. shown on the income statement at cash realizable value always the result of revenue recognition.
claims that are expected to be collected in cash.
The account Allowance for Doubtful Accounts is classified as a(n) liability contra account to Bad Debt Expense. expense. contra account to Accounts Receivable.
contra account to Accounts Receivable.
The matching principle requires that all credit losses be recorded when an individual customer cannot pay necessitates the recording of an estimated amount for bad debts results in the recording of a known account for bad debt losses is not involved in the decision of when to expense a credit loss
necessitates the recording of an estimated amount for bad debts
The net amount expected to be received in cash from receivables is term the net realizable value cash good value gross cash value cash-equivalent value
net realizable value
The receivable that is usually evidenced by a formal instrument of credit is a(n) trade receivable. note receivable. accounts receivable. income tax receivable.
note receivable.
Interest is usually associated with accounts receivable. notes receivable. doubtful accounts. bad debts.
notes receivable
Three accounting issues associated with accounts receivable are depreciating, returns and valuing depreciating, value, and collecting recognizing, valuing, and accelerating collections accrual, bad debts, and accelerating collections
recognizing, valuing, and accelerating collections
The Allowance for Doubtful Accounts is necessary because when recording uncollectible accounts expense, it is not possible to know which specific accounts will pay uncollectible accounts that are written off must be accumulated in a separate account a liability results when a credit sale is made management needs to accumulate all the credit losses over the years
when recording uncollectible accounts expense, it is not possible to know which specific accounts will pay
Under the allowance method, Bad Debt Expense is debited when an account is deemed uncollectible and must be written off True, False
False
Trade receivables occur when two companies trade or exchange notes receivables. True, False
False
Which one of the following is not an accounting problem (issue) associated with accounts receivable? Depreciating accounts receivable Recognizing accounts receivable Valuing accounts receivable Accelerating cash receipts from accounts receivable
Depreciating accounts receivable
Accounts receivable are the result of cash and credit sales. True, False
False
Bad debt expense and interest revenue are reported in the income statement under other revenues and expenses. True, False
False
If bad debt losses are significant, the direct write-off method is acceptable for financial reporting purposes. True, False
False
In a promissory note, the party to whom payment is to be made is called the maker. True, False
False
The Allowance for Doubtful Accounts is a liability account. True, False
False
The Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible. True, False
False
The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year. True, False
False
The allowance for doubtful accounts is similar to accumulated depreciation in that it shows the total of all accounts written off over the years. True, False
False
The allowance method of accounting for bad debts violates the matching principle. True, False
False
The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the Allowance for Doubtful Accounts in the True, False
False
Other receivables include non-trade receivables such as loans to company officers. True, False
True
Which of the following receivables would not be classified as an "other receivable"? Advance to an employee Refundable income tax Notes receivable Interest receivable
Notes receivable
If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account involves only balance True, False
True
Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 7 0.10 2 6/12. True, False
True
A factor buys receivables from businesses for a fee and collects the payment directly from customers. True, False
True
A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time. True, False
True
Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the balance sheet. True, False
True
Both accounts receivable and notes receivable represent claims expected to be collected in cash. True, False
True
Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the balance sheet True, False
True
Under the allowance method, writing off an uncollectible account affects only balance sheet accounts affects both balance sheet and income statement accounts affects only income statement accounts is not an acceptable practice
affects only balance sheet accounts
The term "receivables" refers to amounts due from individuals or companies. merchandise to be collected from individuals or companies. cash to be paid to creditors. cash to be paid to debtors.
amounts due from individuals or companies.
Under the allowance method. Bad Debt Expense is recorded when an individual account is written off. when the loss amount is known. for an amount that the company estimates it will not collect. several times during the accounting period.
for an amount that the company estimates it will not collect.
Notes or accounts receivables that result from sales transactions are often called sales receivables. non-trade receivables. trade receivables. merchandise receivables.
trade receivables.