Chapter 8 Questions and Answers

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

A

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 $9,500. c. a credit to Allowance for Doubtful Accounts of $10,500. d. None of these choices are correct.

A

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

A

Financial statement data for the year ending December 31 for Gore Co. are as follows: Sales $4,250,000 Accounts receivable: Beginning of year 600,000 End of year 630,000 Determine accounts receivable turnover for the year. a. 6.91 b. 7.08 c. 6.75 d. 3.46

A

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

A

The face value of a promissory note is a. the amount for which the note is written. b. the discounted value of the note. c. the amount for which the note is written plus the interest due at the maturity date. d. its realizable value.

A

The party to whom the promissory note is payable is the a. payee. b. maker. c. issuer. d. None of these choices are correct.

A

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

A

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

A

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

A

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

B

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

B

Allowance for Doubtful Accounts is a(n) a. contra revenue account. b. contra asset account. c. revenue account. d. expense account.

B

Allowance for Doubtful Accounts will have a. an unadjusted debit balance at the end of the period if the write-offs during the period were less than the beginning balance. b. an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance. c. an unadjusted debit balance at the end of the period if the write-offs during the period were equal to the beginning balance. d. an unadjusted credit balance at the end of the period if the write-offs during the period were more than the beginning balance.

B

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 include a a. debit to Sales Returns and Allowances and a credit to Accounts Receivable. b. debit to Bad Debt Expense and a credit to Accounts Receivable. c. debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts. d. debit to Accounts Receivable and a credit to Bad Debt Expense.

B

Financial statement data for the year ending December 31 for Flagg Co. are as follows: Sales $4,250,000 Accounts receivable: Beginning of year 600,000 End of year 630,000 Determine the number of days' sales in receivables for the year. a. 50.0 days b. 52.8 days c. 54.1 days d. 51.5 days

B

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 to a. debit Sales Returns and Allowances and credit Accounts Receivable. b. debit Allowance for Doubtful Accounts and credit Accounts Receivable. c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts. d. debit Accounts Receivable and credit Bad Debt Expense.

B

If Accounts Receivable for Fiona Industries is equal to $445,400 and Allowance for Doubtful Accounts is $13,700 at December 31, what is the amount of net receivables shown on Fiona's balance sheet of the same date? a. $459,100 b. $431,700 c. $445,400 d. Cannot be determined from the information given.

B

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. Uncollectible Accounts Payable b. Accounts Receivable c. Bad Debt Expense d. Allowance for Doubtful Accounts

B

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

B

The direct write-off method is used by all of the following businesses except a. those that sell certain kinds of merchandise, like restaurants or convenience stores. b. those that have receivables as a large part of their current assets. 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.

B

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

B

The estimate of uncollectible accounts is based on all of the following except a. industry averages. b. monthly cash expenses. c. past experience. d. forecasts of the future.

B

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. the number of days in a year by accounts receivable. d. None of these choices are correct.

B

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

B

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

B

lora 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 to a. debit Bad Debt Expense and credit Allowance for Doubtful Accounts. b. debit Allowance for Doubtful Accounts and credit Accounts Receivable. c. debit Sales Returns and Allowances and credit Accounts Receivable. d. debit Accounts Receivable and credit Bad Debt Expense.

B

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. $9,900. b. $9,225. c. $9,000. d. $8,100.

C

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

C

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 Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500 b. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500 c. Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500 d. Debit Allowance for Doubtful Accounts, $15,500; credit Bad Debt Expense, $15,500

C

Allowance for Doubtful Accounts will have a. an unadjusted debit balance at the end of the period if the write-offs during the period were equal to the beginning balance. b. an unadjusted debit balance at the end of the period if the write-offs during the period were less than the beginning balance. c. an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance. d. an unadjusted credit balance at the end of the period if the write-offs during the period were more than the beginning balance. Feedback

C

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 credit to Cash of $3,650. c. a credit to Allowance for Doubtful Accounts of $3,650. d. a debit to Allowance for Doubtful Accounts of $3,650.

C

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

C

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

C

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

C

The two methods to estimate uncollectible accounts are a. direct write-off and analysis of receivables. b. percent of sales and direct write-off. c. percent of sales and analysis of receivables. d. percent of receivables and analysis of receivables.

C

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

C

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. a. 7.8 b. 46.8 c. 7.5 d. 48.7

C

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. $10,000. b. $9,700. c. $11,200. d. $10,300.

D

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

D

If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account that 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. includes a credit to Cash of $3,650. c. includes a debit to Allowance for Doubtful Accounts of $3,650. d. is the same as it would be under the allowance method.

D

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 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. b. a debit to Cash for $2,250 under the direct method rather than a credit to Cash for $2,250 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 write-off method rather than a debit to Allowance for Doubtful Accounts for $3,250 under the allowance method.

D

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 three months. At December 31, Bright should record interest revenue of a. $200. b. $0. c. $600. d. $100.

D

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

D

The numerator in the number of days' sales in receivables calculation is a. Average Daily Sales. b. Accounts Receivable Beginning Balance. c. Accounts Receivable Ending Balance. d. None of these choices are correct.

D

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

D

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

D

Under the allowance method, a. bad debt expense is recorded when specific customer accounts are determined to be uncollectible. b. primary users are small companies with few receivables. c. the allowance account is used, but estimates are not. d. the allowance account and estimates are used.

D

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

D

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

D

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. a. 46.8 b. 48.7 c. 7.8 d. 7.5

D

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

D