21) When using the allowance method, Allowance for Bad Debts is debited when an account receivable is
written off.
22) Under the allowance method, the entry to write off a receivable increases the amount of the
Allowance for Bad Debts account.
23) The entry to write off an account receivable under the allowance method will ________.
A) reduce net income
B) have no effect on net income
C) increase total assets
D) increase net income
24) Jayson Enterprises uses the allowance method to account for uncollectible receivables. When an
uncollectible account is written off, ________.
A) the Bad Debt Expense account is debited
B) no entry is required because bad debt expense is estimated at the end of the accounting period
C) the write off has no effect on net income
D) the Allowance for Bad Debts account is credited
25) When using the allowance method, the write-off of a receivable ________.
A) involves a contra-revenue account
B) reduces the amount of the Allowance for Bad Debts account
C) decreases net income
D) affects the net realizable value of accounts receivable
26) On January 16, Half Circle, Inc. sold $5,000 of merchandise to Arnold, on account. Half Circle could
not collect cash from Arnold and wrote off the account. Prepare a journal entry to record the write–off,
assuming Half Circle uses the allowance method. Omit explanation.
27) Define net realizable value. How is net realizable value affected when a receivable is written off
under the allowance method?
28) After a company has written off an account, the company continues to attempt to collect on the
receivable.
29) Under the allowance method, if a customer makes payment on a receivable that has already been
written off, the company needs to reverse the write-off to the Allowance for Bad Debts account.
30) If a customer makes payment on a receivable that has already been written off, the receivable account
is reestablished.
31) When using the allowance method, the receipt of a payment on receivables that have been written-off
requires an entry to reverse the write-off to the Allowance for Bad Debts account and an entry to record
the receipt of cash.
32) When using the allowance method, after a company has previously written off an account, ________.
A) the company continues to send monthly statements to the customers whose accounts have been
written off
B) the company cannot collect from these customers because their accounts have been written off
C) when a customer pays on an account that has been written off, the company needs to reverse the
write-off to the Allowance for Bad Debts account and then record the receipt of cash
D) the company does not need to re-establish the receivable account
33) On June 16, 2018, Evergreen Inc. wrote off the $200 receivable from customer M. Simmons. On
October 14, 2018, Evergreen unexpectedly receives $200 cash from M.Simmons. How should Evergreen
record the $200 payment from M. Simmons? Evergreen uses the allowance method.
A) debit Cash and credit Bad Debts Expense
B) debit Accounts Receivable – M. Simmons and credit Allowance for Bad Debts; debit Cash and credit
Accounts Receivable – M. Simmons
C) debit Accounts Receivable – M. Simmons and credit Bad Debts Expense; debit Cash and credit
Accounts Receivable – M. Simmons
D) debit Cash and credit Allowance for Bad Debts
34) During July 2019, Midtown Catering recorded the following:
Catering services of $86,400 were provided ($64,500 on account, $21,900 for cash)
Collections on account, $58,950
Write-offs of uncollectible receivables, $2,560
Recovery of receivable previously written off, $1,000
Journalize Midtown’s transactions during July, assuming Midtown uses the allowance method. Omit
explanations.
35) On July 15, 2018, Ellison Brothers Oil, Inc. sold $5,000 of merchandise to S & G Company, on account.
Ignore cost of goods sold. Ellison could not collect cash from S & G and wrote off the account on
December 31, 2018. On November 4, 2019, S & G unexpectedly paid $5,000. Journalize the transactions on
December 31, 2018 and November 4, 2019. (Ellison uses the allowance method.) Omit explanations.
2018
Accounts Receivable — S & G
Nov. 4
Accounts Receivable — S & G
2019
Allowance for Bad Debts
2019
Accounts Receivable — S & G
37) The percent-of-sales method, used to compute bad debt expense, is also known as the balance sheet
approach.
38) The percent-of-sales method calculates bad debts expense as a percentage of net credit sales.
39) The aging-of-receivables method is a balance sheet approach of estimating uncollectible accounts.
40) Two methods of estimating uncollectible receivables are ________.
A) the allowance method and the amortization method
B) the aging-of-accounts-receivable method and the percent-of-sales method
C) the gross-up method and the direct write-off method
D) the direct write-off method and the percent-of-completion method
41) The following information is from the records of Chicago Photography:
Accounts Receivable, December 31, 2019
$22,000 (debit)
Allowance for Bad Debts, December 31, 2019
prior to adjustment
800 (debit)
Net credit sales for 2019
95,000
Accounts written off as uncollectible during
2019
450
Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $2,850 of
accounts receivable will be uncollectible. Calculate the amount of net accounts receivable after the
adjustment for bad debts.
A) $19,950
B) $19,150
C) $18,350
D) $17,900
42) The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad
debts expense. The company’s management estimates that 4% of net credit sales will be uncollectible for
the year 2019. Net credit sales for the year amounted to $250,000. What is the amount of Bad Debts
Expense reported on the income statement for 2019?
A) $10,000
B) $12,000
C) $5,000
D) $8,000
43) The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad
debts expense. The company’s management estimates that 2% of net credit sales will be uncollectible for
the year 2019. Net credit sales for the year amounted to $270,000. What will be the balance of Allowance
for Bad Debts on the December 31, 2019 balance sheet?
A) $5,400
B) $2,000
C) $7,400
D) $5,360
44) The Allowance for Bad Debts has a credit balance of $8,000 before the adjusting entry for bad debts
expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of–
receivables method, the company’s management estimates that uncollectible accounts will be $17,000.
What will be the amount of Bad Debts Expense reported on the income statement?
A) $25,000
B) $9,000
C) $17,000
D) $8,000
45) The Allowance for Bad Debts account has a credit balance of $8,300 before the adjusting entry for bad
debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging–
of-receivables method, the company’s management estimates that uncollectible accounts will be $14,700.
What will be the balance of the Allowance for Bad Debts reported on the balance sheet?
A) $14,700
B) $6,400
C) $23,000
D) $13,230
46) The Allowance for Bad Debts account has a debit balance of $9,000 before the adjusting entry for bad
debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-
of-receivables method, the company’s management estimates that uncollectible accounts will be $11,000.
What amount of bad debts expense will be reported on the income statement?
A) $8,000
B) $20,000
C) $2,000
D) $11,000
47) The Allowance for Bad Debts account has a debit balance of $8,000 before the adjusting entry for bad
debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger, the company’s
management estimates that uncollectible accounts will be $12,000. What will be the amount of the
adjustment in the Allowance for Bad Debts account?
A) $19,250
B) $12,000
C) $18,900
D) $20,000