58. The following information was taken from the unadjusted trial balance and aging
schedule of Diane Company on December 31, 2015. All sales are on account.
Accounts and related balances at December 31, 2015 before adjustment:
Debit
Credit
Accounts receivable
$46,000
Allowance for doubtful accounts
$ 680
Sales (all on account)
500,000
Sales returns
3,000
Aging Schedule of Accounts Receivable:
Age
Amount
0-30 days
$14,000
5%
30-60 days
20,000
8%
Over 60 days
12,000
12%
If Diane uses the aging schedule of accounts receivable to determine bad debts, what is
the bad debts expense for the year ending December 31, 2015?
a. $4,280
b. $3,600
c. $3,680
d. $3,060
Solution:
Desired balance of Allowance for Uncollectible Accounts:
$14,000
X
.05 =
$ 700
$20,000
X
.08 =
1,600
$12,000
X
.12 =
1,440
$3,740
Beginning balance $ 680
Less desired balance (3,740)
Bad debt expense $3,060
Ans: D
KP 5 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Measurement
59. The following information was taken from the unadjusted trial balance and aging
schedule of Diane Company on December 31, 2015. All sales are on account.
Accounts and related balances at December 31, 2015 before adjustment:
Debit
Credit
Accounts receivable
$46,000
Allowance for doubtful accounts
$ 680
Sales (all on account)
500,000
Sales returns
3,000
Aging Schedule of Accounts Receivable:
Age
Amount
0-30 days
$14,000
5%
30-60 days
20,000
8%
Over 60 days
12,000
12%
If Diane uses the aging schedule of accounts receivable to determine bad debts, what is
the Allowance for Doubtful Accounts balance at December 31, 2015?
a. $3,000
b. $4,280
c. $2,920
d. $3,740
60. The following information was taken from the unadjusted trial balance and aging
schedule of Diane Company on December 31, 2015. All sales are on account.
Accounts and related balances at December 31, 2015 before adjustment:
Debit
Credit
Accounts receivable
$46,000
Allowance for doubtful accounts
$ 680
Sales (all on account)
500,000
Sales returns
3,000
Aging Schedule of Accounts Receivable:
Age
Amount
0-30 days
$14,000
5%
30-60 days
20,000
8%
Over 60 days
12,000
12%
If Diane uses the aging schedule of accounts receivable to determine bad debts, what is
the net realizable value of accounts receivable on the 2015 financial statements?
a. $46,000
b. $42,260
c. $42,320
d. $30,400
61. The following information was taken from the unadjusted trial balance and aging
schedule of Diane Company on December 31, 2015. All sales are on account.
Accounts and related balances at December 31, 2015 before adjustment:
Debit
Credit
Accounts receivable
$46,000
Allowance for doubtful accounts
$ 680
Sales (all on account)
500,000
Sales returns
3,000
Aging Schedule of Accounts Receivable:
Age
Amount
0-30 days
$14,000
5%
30-60 days
20,000
8%
Over 60 days
12,000
12%
If Diane Company estimates bad debts as 6% of net credit sales, what is the amount of
bad debts expense to be reported on the income statement for the period ending
December 31, 2015?
a. $27,019
b. $29,820
c. $30,000
d. $29,779
62. On December 1, 2015, Sedona Trading Co. sold goods to a German company for
25,000 German marks (25,000 DM) to be collected on January 12, 2016. The exchange
rates on December 1 and December 31, 2015 are US$0.75 = 1 DM and US$.90 = 1 DM,
respectively. What is Sedona’s revenue in U.S. dollars?
a. $18,750
b. $22,500
c. $3,750
d. $41,250
Solution:
63. On December 1, 2015, Sedona Trading Co. sold goods to a German company for
25,000 German marks (25,000 DM) to be collected on January 12, 2016. The exchange
rates on December 1 and December 31, 2015 are US$0.75 = 1 DM and US$.90 = 1 DM,
respectively. What is Sedona’s exchange gain or loss for 2015?
a.$22,500 Exchange Gain
b. $3,750 Exchange Loss
c. $3,750 Exchange Gain
d. $18,750 Exchange Loss
Solution:
MATCHING QUESTIONS
1. For each item listed in 1 through 5 below, place the letter of the best description selected
from a through e in the space provided. You may use each letter more than once or not
at all.
Descriptions
a. (Accounts receivable∕sales) x 365
b. 2/10, n/30
c. Proper matching achieved
d. Expense recognized when an account is written off
e. Cash-purchase-sale-cash
____ 1. Operating cycle
____ 2. Cash discount
____ 3. Allowance method
____ 4. Collection period
____ 5. Direct write-off method
Solution:
2. For each item numbered 1 through 5 below, identify the letter of the best description by
selecting from items a through e below. You may use each letter more than once or not
at all.
Descriptions
a. Intention is to convert into cash within one year
b. Current assets/current liabilities
c. Current assets – current liabilities
d. Must pay within one year
e. (Cash + marketable securities + accounts receivable) divided by current liabilities
____ 1. Current liabilities
____ 2. Current assets
____ 3. Quick ratio
____ 4. Working capital
____ 5. Current ratio
3. For each item listed in 1 through 5, place the letter (a through e) of the best description
in the space provided. You may use each letter more than once or not at all.
Descriptions
a. Occurs when a customer brings back merchandise for a refund
b. A reduction in the per-unit price if a certain quantity is purchased
c. Decreases accounts receivable
d. An incentive for customers to pay timely
e. Estimated cash value
f. Arises from normal credit sales transactions with customers
____ 1. Sales returns
____ 2. Accounts receivable
____ 3. Sales discounts
____ 4. Net realizable value
____ 5. Quantity discounts
Solution:
KP 4 BT: K Difficulty: Easy TOT: 2 min. AACSB: Analytic
Test Bank – Chapter 6 – The Current Asset Classification, Cash, and Accounts Receivable 6-27
SHORT PROBLEMS
1. At the beginning of 2015, Flagstaff Corp.’s allowance for doubtful accounts is $10,000.
During 2015, $7,000 was written off as uncollectible. At December 31, the company
used an aging schedule of accounts receivable and determined that $8,000 of the
accounts receivable would probably be uncollectible. Calculate bad debts expense to be
reported on Flagstaff’s 2015 income statement.
Solution:
AICPA BB: Critical Thinking AICPA FN: Measurement
2. Before adjusting entries, Dormont Corp’s accounts receivable and allowance for doubtful
accounts are $800,000 and $7,000 (credit balance), respectively. Using an aging
schedule of accounts receivable, it is determined that $44,000 of the accounts
receivable would probably be uncollectible. Calculate the net realizable value of
Dormont’s receivables at year end.
6-28 Test Bank – Chapter 6 – The Current Asset Classification, Cash, and Accounts Receivable
Use the information that follows concerning the current assets and current liabilities of Ryan
Company at December 31, 2015, to answer problems 3 through 8. Each problem is
independent of the others.
Current Assets
Cash
$1,700
Accounts Receivable
$2,900
Less Allowance
(70)
2,830
Inventory
2,270
Prepaid expenses
300
Total
$7,100
Current Liabilities
Accounts payable
$4,000
Wages payable
300
Taxes payable
200
Rent payable
800
Notes payable
1,000
Total
$6,300
3. How would the current ratio be affected if Ryan collects the accounts receivable and
then uses some of the cash to pay off the accounts payable?
Solution:
4. Calculate Ryan’s working capital, current ratio, and quick ratio at December 31, 2015.
Solution:
5. How would the quick ratio be affected if Ryan purchased $500 of inventory on account?
Solution:
6. How would the current ratio be affected if Ryan collects $600 from customers for
amounts owed?
7. What would the quick ratio be if Ryan sold all of its inventory for $5,000 cash?
Solution:
8. How would the current ratio be affected if Ryan paid off its wages and taxes?
Solution:
9. Brocton Inc. sells to customers only on credit. For the year ended December 31, 2015,
the following information is provided:
Sales revenue
$550,000
Accounts receivable, 1/01/15
240,000
Allowance for doubtful accounts, 12/31/15(before adjustment for bad debts)
600
Collections during 2015
580,000
Accounts written off as uncollectible during 2015
14,000
Sales returns
6,000
A. Determine the balance of the Accounts Receivable account at December 31, 2015.
B. If Brocton estimates bad debts at 3% of net credit sales, how much is bad debt
expense?
Solution:
10. Before adjusting entries, Martin’s accounts receivable and allowance for doubtful
accounts are $65,000 and $1,500 (debit balance), respectively. Using an aging schedule
of accounts receivable, it is determined that $4,000 of the accounts receivable would
probably be uncollectible. Calculate bad debts expense to be reported on Martin’s
current year’s income statement?
Solution:
11. The balances of the allowance for doubtful accounts on the balance sheets dated
December 31 of 2015 and 2014 were $1,000 and $4,000, respectively. During 2015, bad
debts expense was $9,000. What is the amount of accounts receivable that were written
off as uncollectible during 2015?
Solution:
12. The following information is provided for Garland Inc. Answer the questions that follow.
Balance Sheet
2015
2014
Cash and cash equivalents
$98,000
$114,000
Accounts Receivables, less allowance for doubtful
accounts of $3,000 (2015) and $1,800 (2014)
165,000
132,000
A. How much is the balance in the Accounts Receivable account at December 31,
2015?
B. What is the amount of the Net Realizable Value of the receivables at December 31,
2015?
Solution:
13. The balances of the allowance for doubtful accounts on the balance sheets dated
December 31 of 2015 and 2014 were $21,000 and $14,000, respectively. During 2015,
$13,000 of accounts receivable were written off as uncollectible. How much bad debts
expense is recognized during 2015?
Test Bank – Chapter 6 – The Current Asset Classification, Cash, and Accounts Receivable 6-31
Solution:
14. Before adjusting entries, Clark’s accounts receivable and allowance for doubtful
accounts are $42,000 and $300 (credit balance), respectively. Clark determined that
0.4% of net sales would probably be uncollectible. Sales during the year were $500,000
and sales returns amounted to $6,000. Calculate the net realizable value of accounts
receivable on Clark’s balance sheet at year-end.
Solution:
Use the information that follows taken from the unadjusted trial balance and aging schedule of
Behrend Company on December 31, 2015 to answer problems 15. All sales are on account.
Accounts and related balances at December 31, 2015 before adjustment:
Debit
Credit
Accounts receivable
$47,000
Allowance for doubtful accounts
$ 420
Sales (all on account)
400,000
Sales returns
2,000
Aging Schedule of Accounts Receivable:
Age
Amount
0-30 days
$15,000
2%
30-60 days
18,000
7%
Over 60 days
14,000
13%
15. If Behrend uses the aging schedule of accounts receivable to determine bad debts,
determine the following:
A. Bad debts expense for the year ending December 31, 2015
B. Allowance for Doubtful Accounts balance at December 31, 2015
C. Net realizable value of accounts receivable on the 2015 financial statements
Solution:
A. Desired balance of Allowance for Uncollectible Accounts:
$15,000
X
.02 =
$ 300
$18,000
X
.07 =
1,260
$14,000
X
.13 =
1,820
$3,380
Beginning balance $ 420
Less desired balance (3,380)
Bad debt expense $2,960
B. Allowance for uncollectible accounts $ 420