13) A company with significant amounts of accounts receivable experiences uncollectible accounts from
time to time. If the company uses the direct write-off method, the effect of writing off an uncollectible
receivable will be ________.
A) a reduction in net income
B) negligible on net income
C) an increase in total assets
D) a generation of positive cash flow
14) Once an accounts receivable is written off ________.
A) the account must be turned over to a collection agency
B) the company continues to pursue the collection
C) the company still expects to be paid
D) the customer’s accounts receivable is removed from the books
15) Prepare the journal entry to record an uncollectible accounts receivable of $10,000, using the direct
write-off method. Omit explanation.
16) In order to keep accurate records about the collection of cash for a previously written off account, a
business should re-establish the Accounts Receivable by crediting the receivable account.
17) In order to keep accurate records about the collection of cash for a previously written off account, a
business should re-establish the Accounts Receivable by debiting the receivable account.
18) Customer G. Smith owed Stonehollow Electronics $425. On April 27, 2018, Stonehollow determined
this account receivable to be uncollectible and wrote off the account. The company uses the direct write-
off method. On July 15, 2018, Stonehollow received a check for $425 from the customer. How should the
July 15, 2018 transaction be recorded?
A)
July 15
Cash
425
Accounts Receivable – G. Smith
425
B)
July 15
Accounts Receivable – G. Smith
425
Bad Debt Revenue
425
July 15
Cash
425
Accounts Receivable – G. Smith
425
C)
July 15
Cash
425
Bad Debt Expense
425
D)
July 15
Accounts Receivable – G. Smith
425
Bad Debt Expense
425
July 15
Cash
425
Accounts Receivable – G. Smith
425
19) Moonlight, Inc. wrote off the account of one of its customers, X, in 2018 for $500. On January 21, 2019,
X unexpectedly repaid his account in full. The company uses the direct write-off method to account for
uncollectible receivables. Journalize the entries required for Moonlight, Inc. on January 21, 2019. Omit
explanations.
20) Companies that follow GAAP are required to use the direct write-off method for uncollectible
accounts receivable.
21) The direct write-off method is only acceptable for companies that have very few uncollectible
receivables.
22) The direct write-off method for uncollectible accounts violates the matching principle.
23) For a company with significant uncollectible receivables, the direct write-off method is unsuitable
because ________.
A) it overstates liabilities on the balance sheet
B) it violates the matching principle
C) it uses estimates for determining the bad debt expense
D) companies are not able to track customer payment histories
24) Which of the following statements is true of the direct write-off method?
A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.
1) The use of the allowance method to record bad debts expense violates the matching principle.
2) A method of accounting for uncollectible receivables in which the company estimates bad debts
expense instead of waiting to see from which customers the company will not be able to collect is known
as the allowance method.
3) Under both the allowance method and the direct-write off method of accounting for uncollectible
accounts, the amount of bad debts expense is estimated at the end of each accounting period.
4) The Allowance for Bad Debts is a contra account to Accounts Receivable.
5) The allowance method of accounting for uncollectible receivables ________.
A) is used to measure bad debts
B) violates the matching principle
C) records bad debt expense in the period the accounts receivable is written off
D) requires the use of a contra liability account.
6) Which of the following statements regarding the allowance method of accounting for uncollectible
receivables is incorrect?
A) Bad debt expense is not estimated.
B) The Allowance for Bad Debts is used to hold the pool of “unknown” uncollectible accounts.
C) The business does not wait to see which customers will not pay when estimating the allowance for bad
debts.
D) The allowance method is based on the matching principle.
7) The Allowance for Bad Debts account ________.
A) is a liability account
B) holds the pool of “unknown” uncollectible accounts
C) increases with a debit
D) is added to accounts receivable
8) The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts Expense from
Accounts Receivable.
9) When accounting for uncollectible accounts under IFRS, the allowance method is used to accomplish
the matching of bad debt expense to the sales of the period but not to report receivables at net realizable
value.
10) To report accounts receivable at the appropriate amount on the balance sheet, a company determines
an accurate estimate of uncollectible accounts and recognizes the associated bad debt expense.
11) When using the allowance method to account for uncollectible accounts receivable, companies
estimate bad debt expense at the end of the period and then record an adjusting entry.
12) When a company uses the allowance method to measure bad debts, ________.
A) the Bad Debts Expense account is debited when an account is written off
B) the amount of bad debts expense is estimated at the end of the accounting period
C) the normal balance in the Allowance for Bad Debts account is a debit
D) the amount of bad debts expense is not estimated at the end of the accounting period
13) Which of the following is true of the balance sheet presentation of the Allowance for Bad Debts?
A) It is reported as a current liability.
B) It is reported as an operating expense.
C) It is reported as a separate, independent line item under current assets.
D) It is shown as a contra account related to accounts receivable.
14) Accounts Receivable has a balance of $32,000, and the Allowance for Bad Debts has a credit balance of
$3,000. The allowance method is used. What is the net realizable value of Accounts Receivable before and
after a $2,100 account receivable is written off?
A) $29,000; $29,000
B) $26,900; $26,900
C) $29,000; $26,900
D) $26,900; $31,100
15) Accounts Receivable has a balance of $8,000, and the Allowance for Bad Debts has a credit balance of
$450. The allowance method is used. What is the net realizable value of Accounts Receivable after a $160
account receivable is written off?
A) $7,390
B) $7,710
C) $7,550
D) $8,000
16) A company reports net accounts receivable of $152,000 on its December 31, 2019 balance sheet. The
Allowance for Bad Debts has a credit balance of $19,000. What is the balance of Accounts Receivable?
A) $157,000
B) $152,000
C) $171,000
D) $133,000
17) After the December 31, 2019 adjusting journal entries have been posted, Sinclair Enterprises has the
following account balances (all accounts have normal balances) are:
Account Title
Account Balance
Accounts Receivable
$159,000
Allowance for Bad Debts
$4,600
Bad Debts Expense
$8,200
What is the net realizable value as of December 21, 2019?
A) $163,600
B) $150,800
C) $146,200
D) $154,400
18) After the December 31, 2019 adjusting journal entries have been posted, Tri-State Distributors has the
following account balances (all accounts have normal balances) are:
Account Title
Account Balance
Accounts Receivable
$240,000
Allowance for Bad Debts
$12,500
Bad Debts Expense
$14,500
Use this information to prepare, in good form, the Balance Sheet (partial) on December, 31, 2019. Include
a proper heading.
19) Bad Debt Expense is not debited when a company writes off an account receivable when using the
allowance method because the company has already recorded the Bad Debt Expense as an adjusting
entry.
20) The entry to write off an account under the allowance method affects net income at the time of entry.