Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
9-21
67. A company receives a 10%, 90-day note for $1,500. The total interest due on the maturity
date is:
A. $ 50.00
B. $150.00.
C. $ 75.00.
D. $ 37.50.
E. $ 87.50.
68. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The total
interest due on the maturity date is.
A. $50
B. $275
C. $550
D. $825
E. $1,100
69. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The
maturity value of the note is:
A. $12,050
B. $12,275
C. $10,550
D. $12,825
E. $13,100
70. The buyer who purchases and takes ownership of another company's accounts receivable
is called a:
A. Payer.
B. Pledger.
C. Factor.
D. Payee.
E. Pledgee.
71. Pledging receivables:
A. Allows firms to raise cash.
B. Allows a firm to retain ownership of its receivables.
C. Does not transfer risk of bad debts to the lender.
D. Should be disclosed in the financial statements.
E. All of the options are correct.
72. A company factored $45,000 of its accounts receivable and was charged a 3% factoring
fee. The journal entry to record this transaction would include a:
A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to
Accounts Receivable of $43,650.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to
Accounts Receivable of $45,000.
D. Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
73. The quality of receivables refers to:
A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
74. The account receivable turnover measures:
A. How long it takes to sell accounts receivable to a factor.
B. How often, on average, receivables are received and collected during the period.
C. The relation of cash sales to credit sales.
D. How long it takes to sell merchandise inventory.
E. All of the options are correct.
75. The accounts receivable turnover is calculated by:
A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
76. A company has net sales of $900,000 and average accounts receivable of $300,000. What
is its accounts receivable turnover for the period?
A. 0.20.
B. 5.00
C. 20.0
D. 73.0
E. 3.0
77. Dart reported net sales of $8,739 million and average accounts receivable of $864 million.
Its accounts receivable turnover is:
78. Tepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Craig's
turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Craig has the better turnover for both years.
B. Tepsi has the better turnover for both years.
C. Craig's turnover is improving.
D. Craig's credit policies are too loose
E. Craig's is collecting its receivables more quickly than Tepsi in both years.
9-26
79. A company had net sales of $600,000, total sales of $750,000, and an average accounts
receivable of $75,000. Its accounts receivable turnover equals:
A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00
80. The matching principle prescribes:
A. That expenses be ignored if their effect on the financial statements is unimportant to users'
business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
81. The materiality constraint:
A. States that an amount can be ignored if its effect on financial statements is unimportant to
user's business decisions.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. States that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
82. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the allowance account
results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
83. On October 29 of the current year, a company concluded that a customer's $4,400 account
receivable was uncollectible and that the account should be written off. What effect will this
write-off have on this company's net income and total assets assuming the allowance method
is used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
84. Newton Company uses the allowance method of accounting for uncollectible accounts.
On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer,
P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On
July 10, the entry or entries Newton makes to record the recovery of the bad debt is:
A.Accounts Receivable – P. Best 3,000
Allowance for Doubtful Accounts 3,000
Cash 3,000
Accounts Receivable – P. Best 3,000
B.Cash 3,000
Bad debts expense 3,000
C.Accounts Receivable – P. Best 3,000
Bad debts expense 3,000
Cash 3,000
Accounts Receivable – P. Best 3,000
D.Allowance for Doubtful Accounts 3,000
Accounts Receivable – P. Best 3,000
Accounts Receivable – P. Best 3,000
Cash 3,000
E.Cash 3,000
Accounts Receivable – P. Best 3,000
9-29
85. The allowance method based on the idea that a given percent of a company’s credit sales
for the period are uncollectible is:
A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. Direct write-off method.
E. Factoring method.
86. A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and their length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percentage of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
87. An accounting procedure that (1) estimates and reports bad debts expense from credit
sales during the period the sales are recorded, and (2) reports accounts receivable at the
estimated amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
9-30
88. On December 31 of the current year, a company's unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts,
credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6%
of outstanding accounts receivable at the end of the current year will be uncollectible?
A. $ 951.
B. $3,992.
C. $4,884.
D. $5,835.
E. $6,786.
89. A company ages its accounts receivables to determine its end of period adjustment for bad
debts. At the end of the current year, management estimated that $15,750 of the accounts
receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance
for Doubtful Accounts had a debit balance of $175. What adjusting entry should the company
make at the end of the current year to record its estimated bad debts expense?
A.Bad Debts Expense 15,750
Allowance for Doubtful Accounts 15,750
B.Bad Debts Expense 15,575
Allowance for Doubtful Accounts 15,575
9-31
C.Bad Debts Expense 15,925
Allowance for Doubtful Accounts 15,925
D.Accounts Receivable 15,750
Bad Debts Expense 175
Sales 15,925
E.Accounts Receivable 15,925
Allowance for Doubtful Accounts 15,925
90. A company uses the percent of sales method to determine its bad debts expense. At the
end of the current year, the company's unadjusted trial balance reported the following selected
amounts:
Accounts receivable.................................................. $355,000 debit
Allowance for uncollectible accounts....................... 500 credit
Net Sales...................................................................
800,000 credit
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What amount should be debited to Bad Debts Expense when the
year-end adjusting entry is prepared?
A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
91. A company uses the percent of sales method to determine its bad debts expense. At the
end of the current year, the company's unadjusted trial balance reported the following selected
amounts:
Accounts receivable................................................ $355,000 debit
Allowance for uncollectible accounts....................... 500 credit
Net Sales...............................................................
800,000 credit
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What adjusting entry should the company make at the end of the
current year to record its estimated bad debts expense?
A. Debit Bad Debts Expense $2,130; credit Allowance for Doubtful Accounts $2,130.
B. Debit Bad Debts Expense $2,630; credit Allowance for Doubtful Accounts $2,630.
C. Debit Bad Debts Expense $4,300; credit Allowance for Doubtful Accounts $4,300.
D. Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800.
E. Debit Bad Debts Expense $5,300; credit Allowance for Doubtful Accounts $5,300
92. A company has $90,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of outstanding
receivables are uncollectible. The current debit balance (before adjustments) in the allowance
for doubtful accounts is $800. The journal entry to record the adjustment to the allowance
account includes a debit to Bad Debts Expense for:
A. $4,600
B. $5,400
C. $6,200
D. $6,800
E. None of the options are correct
93. Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's
entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
94. The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A. $6,000.
B. $6,480.
C. $5,520.
D. $6,080.
E. $5,920.
95. Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day,
10% promissory note for the $5,000. TechCom's journal entry to record the sales portion of
the transaction is:
A. Debit Accounts Receivable $5,000; credit Sales $5,000
B. Debit Notes Receivable $5,000; credit Sales $5,000
C. Debit Accounts Receivable $5,125; credit Sales $5,125
D. Debit Notes Receivable $5,125; credit Sales $5,125
E. Debit Notes Receivable $5,000; debit Interest Receivable $125; credit Sales $5,125
96. MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal
entry to record the sales portion of the transaction is:
A. Debit Accounts Receivable $7,800; credit Sales $7,800
B. Debit Accounts Receivable $7,930; credit Sales $7,930
C. Debit Notes Receivable $7,800; credit Sales $7,800
D. Debit Notes Receivable $7,930; credit Sales $7,930
E. Debit Notes Receivable $7,800; debit Interest Receivable $130; credit Sales $7,930
97. When the maker of a note honors a note this indicates that the note is:
A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.
98. Failure by a promissory notes’ maker to pay the amount due at maturity is known as:
A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.
99. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
January 15 of the next year when the note is paid?
A. Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B. Debit Cash $4,920; credit Notes Receivable $4,920.
C. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit
Notes Receivable $4,800.
D. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit
Notes Receivable $4,800.
E. Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.
100. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
December 31, to record the accrued interest on the note?
A. Debit Cash $20; credit Notes Receivable $20.
B. Debit Cash $100; credit Notes Receivable $100
C. Debit Interest Receivable $20; credit Interest Revenue $20.
D. Debit Interest Receivable $100; credit Interest Revenue $100.
E. Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.
101. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. If the note is dishonored, what entry
should TechCom make on January 15 of the next year?
A. Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B. Debit Cash $4,920; credit Notes Receivable $4,920.
C. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20, credit
Notes Receivable $4,800.
D. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100, credit
Notes Receivable $4,800.
E. Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable
$100, credit Notes Receivable $4,800.
102. MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. If the note is
dishonored, what is the amount due on the note?
A. $130
B. $7,800
C. $7,930
D. $8,050
E. $8,130
103. The Allowance for Doubtful Accounts:
A. Is a contra asset account.
B. Is used instead of reducing accounts receivable directly.
C. Is debited when uncollectible accounts are written off.
D. All of the options are correct.
E. Is credited when bad debts expense is estimated and recorded.
104. Hankco accepts all major bank credit cards, including Omni Bank’s, which assesses a
4% charge on sales for using its card. On June 28, Hankco had $3,500 in Omni Card credit
sales. What entry should Hankco make on June 28 to record the deposit?
A. Debit Cash $3,500; credit Sales $3,500
B. Debit Accounts Receivable $3,500; credit Sales $3,500
C. Debit Cash $3,640; credit Credit Card Expense $140; credit Sales $3,500
D. Debit Cash $3,360; debit Credit Card Expense $140; credit Sales $3,500
E. Debit Accounts Receivable $3,360; debit Credit Card Expense $140; credit Sales $3,500
105. Calco accepts all major bank credit cards, including First Bank’s, which assesses a 3.5%
charge on sales for using its card. On May 25, Calco had $4,800 in First Bank Card credit
sales. What entry should Calco make on May 25 to record the deposit?
A. Debit Accounts Receivable $4,800; credit Sales $4,800.
B. Debit Cash $4,632; debit Credit Card Expense $168; credit Sales $4,800.
C. Debit Cash $4,800; credit Sales $4,800.
D. Debit Cash $4,968; credit Credit Card Expense $168; credit Sales $4,800.
E. Debit Accounts Receivable $4,632; debit Credit Card Expense $168; credit Sales $4,800.
106. Darby uses the allowance method to account for uncollectible accounts. Its year-end
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for doubtful
accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are estimated to be
4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?
A. $4,845
B. $4,180
C. $3,515
D. $3,700
E. $3,850
