College Accounting, 14e (Slater)
Chapter 13 Accounting for Bad Debts
13.1 Learning Objective 13-1
1) An expense incurred as a result of sales on credit or on account is:
A) Bad Debts Expense
B) Prepaid Rent
C) Insurance Expense
D) Allowance for Doubtful Accounts
2) What type of account is an Allowance for Doubtful Accounts?
A) Asset
B) Contra-asset
C) Revenue
D) Contra-revenue
3) Which financial statement reports an Allowance for Doubtful Accounts?
A) Statement of owner’s equity
B) Income statement
C) Balance Sheet
D) None of these answers is correct.
4) What type of account is a Bad Debts Expense?
A) Asset
B) Expense
C) Contra Asset
D) Liability
5) Current assets listed on the balance sheet include:
A) Land.
B) Buildings.
C) Allowance for Doubtful Accounts.
D) Sales.
6) The allowance method requires:
A) an estimated entry to Bad Debts Expense.
B) a known individual account to write off bad debts.
C) a known uncollectible amount to write off bad debts.
D) None of these answers is correct.
7) Which of the following is a contra-revenue account?
A) Bad Debts Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) None of these answers is correct.
8) Which of the following is considered a temporary account?
A) Accounts Receivable
B) Merchandise Inventory
C) Allowance for Doubtful Accounts
D) Bad Debts Expense
9) Net Realizable Value can be defined as:
A) the Gross Accounts Receivable.
B) the Current Bad Debts Expense.
C) the amount of Accounts Receivable you do not expect to collect.
D) the Gross Accounts Receivable minus the Allowance for Doubtful Accounts.
10) Mercury Holdings estimates it will collect $4,200 of the $5,620 owed by customers. The $4,200 is:
A) the Net Realizable Value.
B) the Bad Debts Allowance.
C) the Allowance for Doubtful Accounts.
D) the Gross Accounts Receivable.
11) Mercury Holdings estimates it will collect $8,930 of the $10,000 owed by customers. The difference of
$1,070 represents the:
A) Gross Accounts Receivable.
B) the Net Realizable Value.
C) Allowance for Doubtful Accounts.
D) Value of the Current Unpaid Receivables.
12) Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal
balance of $600,000 and Allowance for Doubtful Accounts has a debit balance of $40,000. What is the net
realizable value of accounts receivable?
A) $560,000
B) $640,000
C) $600,000
D) $40,000
13) Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal
balance of $510,000 and Allowance for Doubtful Accounts has a credit balance $3,000. What is the net
realizable value of the accounts receivable?
A) $513,000
B) $507,000
C) $510,000
D) $504,000
14) Which of the following is considered a permanent account?
A) Allowance for Doubtful Accounts
B) Sales Returns and Allowances
C) Bad Debts Expense
D) Sales
15) The Allowance for Doubtful Accounts is adjusted:
A) each time a customer is granted credit.
B) each time a customer’s debt is satisfied.
C) within one year of granting credit to a customer.
D) at the end of each accounting period.
16) Uncollectible accounts could:
A) affect accounts payable.
B) ease credit restrictions.
C) decrease cash shortages.
D) be a major cost of selling goods on account.
17) The Accounts Receivable subsidiary ledger is:
A) updated when a debt is identified as uncollectible.
B) credited when a debt is identified as uncollectible.
C) debited when a debt is identified as uncollectible.
D) Both A and B
18) Bad Debts Expense is:
A) not included in Cost of Goods Sold.
B) considered an expense matched with revenues.
C) listed on the income statement.
D) All of the above.
19) When a customer‘s account is written off:
A) net realizable value of the Accounts Receivable remains the same.
B) net realizable value of the Accounts Receivable decreases.
C) net realizable value of the Accounts Receivable increases.
D) None of the above
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20) A company uses the allowance method and has estimated $28,000 as uncollectible. The journal entry
to record the estimated bad debts is:
A)
Allowance for Doubtful Accounts $28,000
Bad Debts Expense $28,000
B)
Allowance for Doubtful Accounts $28,000
Accounts Receivable $28,000
C)
Accounts Receivable $28,000
Allowance for Doubtful Accounts $28,000
D)
Bad Debts Expense $28,000
Allowance for Doubtful Accounts $28,000
21) A company uses the allowance method and has determined a customer’s bill for $6,000 must be
written off. The journal entry to record the write off is:
A)
Allowance for Doubtful Accounts $6,000
Bad Debts Expense $6,000
B)
Allowance for Doubtful Accounts $6,000
Accounts Receivable $6,000
C)
Accounts Receivable $6,000
Allowance for Doubtful Accounts $6,000
D)
Bad Debts Expense $6,000
Allowance for Doubtful Accounts $6,000
22) The Allowance for Doubtful Accounts is shown on the balance sheet as a contra-asset.
23) The normal balance of the Allowance for Doubtful Accounts account is a debit.
24) The normal balance of the Bad Debts Expense account is a debit.
25) Bad Debts Expense is a contra-revenue account.
26) The adjusting entry for uncollectibles is based on an estimate.
27) Allowance for Doubtful Accounts is a contra-asset account.
28) A debit balance in Allowance for Doubtful Accounts indicates the estimate for Bad Debts was too low.
29) Prepare a partial balance sheet for Tangiers Industries at December 31, 201X, from the following
information:
Accounts Receivable $10,400
Sales Revenue 22,970
Prepaid Rent 640
Prepaid Insurance 450
Bad Debt Expense 3,290
Allowance for Doubtful Accounts 1,500
Cash 19,320
Merchandise Inventory 5,222
30) Prepare a partial balance sheet for the Swanson Company at December 31, 201X, from the following
information:
Accounts Receivable $8,560
Prepaid Rent 800
Allowance for Doubtful Accounts 750
Bad Debts Expense 2,000
Cash 12,500
Merchandise Inventory 3,700
13.2 Learning Objective 13-2
1) Gross Accounts Receivable is $39,000. Allowance for Doubtful Accounts has a credit balance of $300.
Net credit sales for the year are $190,000. In the past, 2% of credit sales had proved uncollectible. What
would be the adjusted balance of the Allowance account under the income statement approach?
A) $4,880
B) $4,100
C) $3,800
D) $3,500
2) Gross Accounts Receivable is $18,000. Allowance for Doubtful Accounts has a credit balance of $300.
Net credit sales for the year are $150,000. In the past, 2% of credit sales had proved uncollectible, and an
aging of the receivables indicates $2,100 as uncollectible. What would be the adjusted balance of the
Allowance account under the balance sheet approach?
A) $1,800
B) $3,300
C) $2,100
D) $2,400
3) A method that estimates the amount of Bad Debts Expense based on a percentage of net credit sales for
the period is called:
A) direct write off method.
B) income statement approach.
C) balance sheet approach.
D) None of these answers is correct.
4) At December 31, 201X, Aaron’s Produce unadjusted Allowance for Doubtful Accounts showed a credit
balance of $520. An aging of the Accounts Receivable indicates probable uncollectible accounts of $4,000.
The year-end adjusting entry for Bad Debts Expense:
A) includes a credit to the Allowance account for $3,480.
B) includes a debit to the Allowance account for $520.
C) includes a debit to the Allowance account for $4,000.
D) includes a credit to the Allowance account for $4,520.
5) The method based on the Accounts Receivable amount and the aging process is called:
A) income statement approach.
B) direct write off method.
C) balance sheet approach.
D) None of these answers is correct.
6) Ellen’s Candies estimates that approximately $2.15 out of every $100 of credit sales proves to be
uncollectible. Ellen’s Candies calculates Bad Debts Expense using the:
A) balance sheet approach.
B) aging of Accounts Receivable approach.
C) direct write-off method.
D) income statement approach.
7) The process of classifying accounts of individual customers by age group, where age is the number of
days elapsed from due date is specifically called:
A) balance sheet approach.
B) income statement approach.
C) direct writeoff method.
D) aging of Accounts Receivable approach.
8) Joe’s Auto Repair estimates that approximately 3% of net credit sales are uncollectible. Joe’s calculates
Bad Debts Expense using the:
A) direct write-off method.
B) income statement method.
C) gross method.
D) balance sheet method.
9) Gross Accounts Receivable is $23,000. Allowance for Doubtful Accounts has a credit balance of $500.
Net credit sales for the year are $140,000. In the past, 3% of credit sales had proved uncollectible, and an
aging of the receivables indicates $1,700 is doubtful. Under the income statement approach, Bad Debts
Expense for the year is:
A) $2,200.
B) $4,700.
C) $4,200.
D) $1,200.
10) Gross Accounts Receivable is $21,000. Allowance for Doubtful Accounts has a credit balance of $600.
Net credit sales for the year are $132,000. In the past, 3% of credit sales had proved uncollectible, and an
aging of the receivables indicates $1,800 is doubtful. Under the balance sheet approach, Bad Debts
Expense for the year is:
A) $2,400.
B) $4,560.
C) $3,960.
D) $1,200.
11) Milling Direct uses the aging of Accounts Receivable balance sheet approach to estimate
uncollectibles. The total percentage of not yet due accounts deemed uncollectible are $930, 1-30 days past
due accounts deemed uncollectible are $1,210, and over 30 days past due accounts deemed uncollectible
are $710. If the company has a credit balance in Allowance for Doubtful Accounts of $850, what is the bad
debts expense adjusting entry amount?
A) $2,000
B) $2,850
C) $850
D) $3,700
12) Milling Direct uses the aging of Accounts Receivable balance sheet approach to estimate
uncollectibles. The total percentage of not yet due accounts deemed uncollectible are $1,000, 1-30 days
past due accounts deemed uncollectible are $1,220, and over 30 days past due accounts deemed
uncollectible are $730. If the company has a debit balance in Allowance for Doubtful Accounts of $800,
what is the bad debts expense adjusting entry amount?
A) $800
B) $2,950
C) $3,750
D) $2,150
13) Aircraft Engine Parts’ Allowance for Doubtful Accounts had an unadjusted credit balance of $680. The
manager estimates that $700 of the Accounts Receivable is uncollectible. Using the balance sheet
approach, the year-end adjusting entry for Bad Debts Expense:
A) includes a debit to the Bad Debt Expense account for $20.
B) includes a debit to the Bad Debts Expense account for $700.
C) includes a credit to the Bad Debts Expense account for $1,380.
D) includes a credit to the Bad Debts Expense account for $20.
14) The balance in the Allowance for Doubtful Accounts is ignored under which of the following
approaches?
A) Balance sheet approach
B) Income statement approach
C) Direct write-off approach
D) All three approaches
15) Using the aging method, estimated uncollectible accounts are $3,200. If the balance of Allowance for
Doubtful Accounts is $550 credit before adjustment, what is a Bad Debts Expense for the period?
A) $3,750
B) $2,650
C) $3,200
D) $550
16) When a year-end adjustment is made for estimated bad debts:
A) net income is increased.
B) liabilities increase.
C) net assets increase.
D) net assets decrease.
17) Canteen Depot estimated uncollectible accounts in the amount of $900 for the period. There is a credit
balance in the allowance account of $400. Under the aging of receivables method, the entry to record bad
debts expense is:
A) debit Bad Debts Expense $500; credit Accounts Receivable $500.
B) debit Allowance for Doubtful Accounts $900; credit Bad Debts Expense $900.
C) debit Bad Debts Expense $500; credit Allowance for Doubtful Accounts $500.
D) debit Allowance for Doubtful Accounts $900; credit Accounts Receivable $900.
18) The journal entry to record the estimate of uncollectible accounts includes a:
A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts.
B) debit Bad Debts Expense; credit Accounts Receivable.
C) debit Allowance for Doubtful Accounts; credit Bad Debts Expense.
D) debit Sales; credit Bad Debts Expense.
19) Last year, Plants Unlimited had net credit sales of $696,000 and it had uncollectible accounts of
$32,000. Based on last year, what would the percent of estimated uncollectible accounts be this year?
A) 4.40%
B) 4.82%
C) 4.60%
D) 45.98%
20) Sigma reports net credit sales of $480,000. There is a credit balance of $1,700 in the Allowance for
Doubtful Accounts. Uncollectible accounts are estimated to be 4% of net credit sales. Under the income
statement approach, the adjusting entry would require a debit to Bad Debts Expense for: (Round your
calculations to the nearest whole dollar.)
A) $17,500.
B) $19,200.
C) $19,132.
D) some other number.
21) What general ledger account is debited to write off a customer’s account as uncollectible if using the
allowance method for uncollectible receivables?
A) Bad Debts Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Bad Debts Recovered
22) What general ledger account is credited to write off a customer’s account as uncollectible if using the
allowance method for uncollectible receivables?
A) Accounts Receivable
B) Allowance for Doubtful Accounts
C) Bad Debts Expense
D) Bad Debts Recovered
23) Jones Consulting estimates uncollectibles to be $820. There is a credit balance in the allowance account
of $390. The adjusting entry amount under the aging of receivable balance sheet approach is:
A) $390.
B) $820.
C) $430.
D) $1,210.
24) As the past due time increases for an account, the likelihood of collecting that account:
A) usually goes down.
B) usually goes up.
C) Time does not affect collectibility.
D) None of the above
25) June Cleary estimates uncollectibles to be $2,300. There is a debit balance in the allowance account of
$520. The adjusting entry amount under the aging of receivable balance sheet approach is:
A) $2,300.
B) $520.
C) $2,820.
D) $1,780.
26) A detailed analysis of Accounts Receivable to determine how long each account has been outstanding
is called:
A) aging the Accounts Receivable.
B) aging the uncollectible accounts.
C) analyzing the Accounts Receivable.
D) taking a percentage of sales on account.
27) Harp Brewing received a bankruptcy notice from their customer Jerry. If using an allowance method,
the entry to write-off his balance of $1,300 would be:
A)
Bad Debts Expense $1,300
Allowance for Doubtful Accounts $1,300
B)
Allowance for Doubtful Accounts $1,300
Accounts Receivable/Jerry $1,300
C)
Accounts Receivable/Jerry $1,300
Bad Debts Expense $1,300
D) None of the above
28) Barry Waterhouse uses the aging of Accounts Receivable balance sheet approach to estimate
uncollectibles. Not yet due accounts are $260,000, with an estimated uncollectible percentage of 1%. 1-30
days past due accounts are $38,000, with an estimated uncollectible percentage of 5%. Over 30 days past
due accounts are $10,700, with an estimated uncollectible percentage of 12%. If the company has a credit
balance in Allowance for Doubtful Accounts of $1,000, what is the bad debts expense adjusting entry
amount? (Round any intermediate calculations and your final answer to the nearest dollar.)
A) $5,784
B) $6,784
C) $4,784
D) $2,184
29) Barry Waterhouse uses the aging of Accounts Receivable balance sheet approach to estimate
uncollectibles. Not yet due accounts are $470,000, with an estimated uncollectible percentage of 1.5%. 1–30
days past due accounts are $100,000, with an estimated uncollectible percentage of 3%. Over 30 days past
due accounts are $3,900 with an estimated uncollectible percentage of 10%. If the company has a debit
balance in Allowance for Doubtful Accounts of $950, what is the bad debts expense adjusting entry
amount? (Round any intermediate calculations and your final answer to the nearest dollar.)
A) $10,440
B) $11,390
C) $9,490
D) $2,440
30) The income statement approach estimates a percentage of Accounts Receivable that is uncollectible.
31) Under the balance sheet approach, bad debts expense is $1,500 if the estimated amount of
uncollectible accounts is $1,000 and the Allowance for Doubtful Accounts has a debit balance of $500.
32) Using the balance sheet approach, the balance in Allowance for Doubtful Accounts is taken into
consideration when finding the adjustment using the balance sheet approach.
33) Using the income statement approach, the balance in Allowance for Doubtful Accounts is taken into
consideration when finding the adjustment.
34) Under the balance sheet approach, bad debts expense is $1,000 if the estimated amount of
uncollectible accounts is $1,200 and the Allowance for Doubtful Accounts has a credit balance of $200.
35) The aging of Accounts Receivable is a balance sheet approach.
36) Companies that feel aging is too time-consuming may estimate Bad Debts based on a percentage of
total Accounts Receivable.
37) Bad Debts Expense is recorded in the year the sale was earned when using the income statement
approach.