Accounting Chapter 5 2 When preparing financial statements, the allowance method is preferred over the direct write off method

5.3-22 Interest paid by the bank to a company’s account should appear on the bank reconciliation as:

A) added to the bank balance.

B) added to the book balance.

C) deducted from the book balance.

D) having no impact on the book balance.

5.3-23 A bank collected $200 on behalf of its customer. The $200 should appear on the bank reconciliation as:

A) added to the bank balance.

B) added to the book balance.

C) deducted from the book balance.

D) having no impact on the book balance.

5.3-24 In a bank reconciliation, items recorded by the company, but not yet been recorded by the bank, include:

A) interest.

B) outstanding checks.

C) NSF checks.

D) bank service charges.

5.3-25 In a bank reconciliation, items recorded by the bank, but not yet recorded by the company, include:

A) deposits in transit.

B) bank collections.

C) outstanding checks.

D) both deposits in transit and outstanding checks.

5.3-26 The person who prepares the bank reconciliation:

A) should also be responsible for cash receipts.

B) should also be responsible for cash disbursements.

C) should be responsible for both cash receipts and cash disbursements.

D) should have no other cash duties.

5.3-27 If a bookkeeper mistakenly records a disbursement as $810 instead of the correct amount of $180, the

error should be shown on the bank reconciliation as a(n):

A) $180 addition to the books.

B) $180 deduction from the books.

C) $630 addition to the books.

D) $630 deduction from the books.

5.3-28 If a bookkeeper mistakenly records a disbursement as $36 instead of the correct amount of $63, the error

should be shown on the bank reconciliation as a:

A) $27 addition to the books.

B) $27 deduction from the books.

C) $36 addition to the books.

D) $36 deduction from the books.

5.3-29 A bank deposit of $450 recorded by the bank as $500 should appear on a bank reconciliation as a(n):

A) deduction from the book balance of $50.

B) addition to the book balance of $50.

C) deduction from the bank balance of $50.

D) addition to the bank balance of $50.

5.3-30 If the bank records a deposit of $1,500 as $150, the error should be shown on a bank reconciliation as

a(n):

A) deduction from the book balance of $1,350.

B) deduction from the bank balance of $1,350.

C) addition to the bank balance of $1,350.

D) addition to the book balance of $1,350.

5.3-31 There are two records of a business’s cash—the:

A) cash account in the general ledger and the petty cash box.

B) cash account in the general ledger and the journal entries from the bank reconciliation.

C) bank statement and the cash account in the general ledger.

D) bank statement and the cash in petty cash.

5.3-32 The bank statement balance is $6,450 and shows a service charge of $30, interest earned of $25, and a

NSF check for $475. Deposits in transit total $1,850; outstanding checks are $1,125. What is the

adjusted bank balance?

A) $5,725

B) $5,970

C) $7,175

D) $7,655

5.3-33 The bank statement showed a NSF check of $300. In a bank reconciliation, this would be shown as a:

A $300 deduction from the bank balance.

B) $300 addition to the bank balance.

C) $300 deduction from the book balance.

D) $300 addition to the book balance.

5.3-34 Carla Company’s cash balance at the end of the month was $6,500. After comparing the company’s

records with the monthly bank statement, Carla’s accountant identified the following reconciling items:

outstanding checks, $800; deposits in transit, $700; bank service charge, $30; NSF check, $500. What is

the adjusted bank balance?

A) $6,600

B) $5,970

C) $6,370

D) The adjusted bank balance cannot be determined from this information.

5.3-35 A bank reconciliation included an outstanding check of $1,300 for the purchase of supplies. The journal

entry to record this reconciling item:

A) should debit Supplies and credit Cash for $1,300.

B) should debit Cash and credit Supplies for $1,300.

C) should debit Accounts Receivable and credit Cash for $1,300.

D) is not required.

5.3-36 A bank statement included a NSF check from customer Kim Fields for $2,100. The journal entry to

record this reconciling item should:

A) debit NSF and credit Cash for $2,100.

B) debit Cash and credit Accounts Receivable for $2,100.

C) debit Accounts Receivable and credit Cash for $2,100.

D) debit Cash and credit NSF for $2,100.

5.3-37 If a bank statement included a bank collection and related interest revenue, the journal entry to record this

reconciling item should include a:

A) debit to Cash.

B) credit to Cash.

C) debit to Note Receivable.

D) debit to Note Payable.

5.3-38 If a bank reconciliation included deposits in transit amounting to $3,700, the journal entry to record this

reconciling item:

A) should debit Deposit in Transit and credit Cash for $3,700.

B) should debit Cash and credit Deposit in Transit for $3,700.

C) should debit Accounts Receivable and credit Cash for $3,700.

D) is not required.

5.3-39 If a bank statement includes an EFT payment of $945 for insurance, the journal entry to record this

reconciling item should include a:

A) debit to Cash for $945.

B) debit to Accounts Payable for $945.

C) credit to Cash for $945.

D) credit to Prepaid Insurance for $945.

5.3-40 The book side of a bank reconciliation includes:

A) deposits in transit, bank collections and NSF checks.

B) NSF checks, bank collections and interest earned on the checking account.

C) outstanding checks and deposits in transit.

D) outstanding checks, NSF checks and cost of printed checks.

5.3-41 Which of the following would need to be journalized from the bank reconciliation?

A) All items listed under the bank side

B) All items listed on the book side

C) All items on the book and bank side

D) None of the above

5.3-42 With online banking:

A) a bank reconciliation cannot be prepared.

B) a bank reconciliation can only be prepared at the end of the month when the bank statement arrives.

C) a bank reconciliation can be prepared at any time.

D) the bank prepares the bank reconciliation for the company.

5.4-1 Accounts receivable are current assets.

5.4-2 Accounts (trade) receivables are amounts to be collected from customers from the sale of goods or

services.

5.4-3 Subsidiary records provide no information about control accounts.

5.4-4 The benefit of extending credit to customers is the potential increase in sales.

5.4-5 Monetary claims against others acquired mainly by selling goods and services are:

A) accounts receivable.

B) notes receivable.

C) accounts payable.

D) notes payable.

5.4-6 A separate account for each customer is kept in a(n) :

A) control account.

B) subsidiary ledger.

C) general ledger.

D) control ledger.

5.4-7 One method of establishing proper internal control over collections of accounts receivable is to:

A) set up a petty cash fund.

B) make all disbursements by cash.

C. establish a bank lock box.

D. designate an authorized check signer.

5.4-8 The most important internal control over cash is to:

A) have all customers pay by check.

B) separate cash-handling duties from cash-accounting duties.

C) separate cash-handling from the mailroom.

D) do none of the above.

5.4-9 Uncollectible-account expense is used to record the bad debts expense for the period.

5.4-10 The allowance method of accounting for bad debts records collection losses on the basis of historical

collection patterns, rather than waiting to determine which customers will not pay.

5.4-11 Under the direct write off method, the entry to write off an account that has been deemed uncollectible

has no impact on the net income of the firm.

5.4-12 When preparing financial statements, the allowance method is preferred over the direct write off method

because it more accurately matches revenues and expenses.

5.4-13 Under the direct write-off method, uncollectible-account expense is recorded in the same accounting

period as the sale.

5.4-14 The Allowance for Uncollectible Accounts normally has a credit balance.

5.4-15 The biggest risk of selling on credit is:

A) the risk of posting a payment to the wrong subsidiary account.

B) the risk of not collecting some of the receivables.

C) the risk of losing a sale.

D) none of the above.

5.4-16 The net realizable value of accounts receivable is:

A) the difference between accounts receivable and its contra asset account.

B) the difference between accounts receivable and uncollectible-account expense.

C) the amount of accounts receivable that the company expects to collect.

D) both A and C.

5.4-17 The most acceptable way to measure bad debts is by:

A) the direct write-off method.

B) the percent-of-sales method.

C) the allowance method.

D) none of the above.

5.4-18 The way to estimate uncollectible accounts by analyzing individual accounts receivable according to the

length of time they have been outstanding is known as the:

A) aging-of-receivables method.

B) percent-of-sales method.

C) allowance method.

D) direct write-off method.

5.4-19 The cost to the seller that arises from the failure to collect from customers who were extended credit

called:

A) aging-of-receivables.

B) uncollectible-account expense.

C) direct write-off.

D) aging expense.

5.4-20 Allowance for Uncollectible Accounts is classified as:

A) a contra-expense account.

B) a contra-revenue account.

C) a contra-asset account.

D) none of the above.

5.4-21 The net realizable value of accounts receivable is the:

A) amount the company can collect from a factor when the receivables are sold.

B) amount remaining after uncollectible accounts are written off.

C) amount the company expects to collect from customers.

D) amount the company expects to pay to creditors.

5.4-22 Under the allowance method for estimating uncollectible accounts, the entry to write off an account:

A) increases Allowance for Uncollectible Accounts, thus decreasing net realizable value.

B) increases both Accounts Receivable and Allowance for Uncollectible Accounts, thus decreasing net

realizable value.

C) decreases Accounts Receivable, thus decreasing net realizable value.

D) has no effect on net realizable value.

5.4-23 The allowance method that brings the balance of the allowance account to the needed amount as

determined by the aging schedule is:

A) the percent-of-sale method.

B) the aging-of-receivables method.

C) an income statement approach, since it focuses on the amount of expense to be reported on the

income statement.

D) none of the above.

5.4-24 Under the allowance method, the entry to reinstate an account previously written off:

A) increases total assets.

B) increases net income and increases total assets.

C) decreases net income and increases total assets.

D) has no effect on net income or total assets.

5.4-25 The use of the allowance method of accounting for bad debts is preferred over the direct write-off method

because of the:

A) matching principle.

B) historical cost principle.

C) revenue recognition principle.

D) full disclosure principle.

5.4-26 Under the aging-of-accounts-receivable method, the balance in:

A) Allowance for Uncollectible Accounts prior to adjustment is ignored.

B) Accounts Receivable prior to adjustment must be considered.

C) Allowance for Uncollectible Accounts prior to adjustment must be considered.

D) Uncollectible-Account Expense prior to adjustment must be considered.

5.4-27 To record estimated bad debts under the direct write-off method:

A) debit Allowance for Uncollectible Accounts and credit Accounts Receivable.

B) debit Accounts Receivable and credit Allowance for Uncollectible Accounts.

C. debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts.

D. you do need require a journal entry.

5.4-28 A debit balance in the Allowance for Uncollectible Accounts:

A) cannot occur.

B) is the normal balance.

C) occurs when the actual bad debt write-offs are less that what was estimated.

D) occurs when the actual bad debt write-offs are greater than what was estimated.

5.4-29 The balance in the Allowance for Uncollectible Accounts is considered prior to the year end adjustment

under:

A) the direct write-off method.

B) the percent-of-sales method.

C) the aging-of– receivables method.

D) both the percent-of-sales and aging-of- receivables method.

5.4-30 A year-end review of Accounts Receivable and estimated uncollectible percentages revealed the

following:

1-30 days

$40,000

1.5%

31-60 days

$10,000

8.0%

61-90 days

$6,000

22.0%

Amounts over 90 days past due are written off. The credit balance in Allowance for Uncollectible

Accounts was $520. The uncollectible-account expense for the year is:

A. $ 600.

B) $2,260.

C) $2,200.

D) $3,240.

5.4-31 Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:

A) debit to Accounts Receivable for $2,600.

B) credit to Uncollectible-Account Expense for $2,600.

C) credit to Allowance for Uncollectible Accounts for $2,600.

D) debit to Allowance for Uncollectible Accounts for $2,600.

5.4-32 An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $7,200. The

Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $2,000. The amount of

the adjusting entry should be:

A) $9,200.

B) $7,200.

C) $5,200.

D) $2,000.

5.4-33 The following item appeared on a balance sheet:

Receivables, less allowance of $1,150 …..$8,100

Uncollectible-account expense for the period was $1,250. The gross balance in Accounts Receivable

before the allowance was deducted was:

A) $6,950.

B) $8,100.

C) $9,250.

D) $9,350.

5.4-34 The following account balances were extracted from the accounting records of A and D Corporation:

Accounts Receivable

$110,000

Allowance for Uncollectible Accounts

$35,000

Uncollectible-Account Expense

$60,000

What is the net realizable value of the accounts receivable?

A) $145,000

B) $110,000

C) $ 75,000

D) $ 50,000

5.4-35 Using the aging-of-receivables method to estimate uncollectibles, Greeley Corporation estimates that

$9,500 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for

Uncollectible Accounts has a debit balance of $3,000. After all necessary adjusting entries are made, the

balance in Allowance for Uncollectible Accounts will be:

A) $12,500.

B) $ 9,500.

C) $ 6,500.

D) $ 3,000.

5.4-36 Bigg and Talle Corporation uses the aging-of-receivables method to estimate uncollectibles. Total

receivables as of balance sheet date amount to $5,000,000, and management estimates $300,000 will be

uncollectible. Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $16,000.

After all necessary adjusting entries are made, the balance in Allowance for Uncollectible Accounts will

be:

A) $300,000.

B) $284,000.

C) $316,000.

D) $16,000.