Chapter 6—Receivables Key
1. On January 2, Well Corporation sold merchandise with a gross price of $140,000 to Priority Corporation with
terms of 2/10, n/30. How much sales discounts would be recorded if payment was received on January 8?
2. Records Inc. received payment of a $20,000 accounts receivable within 10 days. The terms were 2/10, n/30.
Records would show a:
3. Leno, Inc.
Data for Leno, Inc. for 2012 are presented below.
Credit sales during the year
$3,200,000
Accounts receivable—December 31, 2012
325,000
Allowance for bad debts—December 31, 2012
35,000
Bad debt expense for the year
20,000
Refer to the information given above for Leno, Inc. What amount will Leno show on its year-end balance sheet for the net realizable value of its
accounts receivable?
4. The following information was presented in the balance sheet of Diablo Company as of December 31, 2012:
Trade accounts receivable, net of allowance for doubtful
accounts of $255,000
$1,700,000
Which one of the following statements is true?
5. When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited
when:
6. Which one of the following is an accurate description of the allowance for bad debts?
7. If a company uses the direct write-off method of accounting for bad debts:
8. Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the
accounting equation of the entry to record the write-off of a customer’s account balance?
9. If a company uses the allowance method of accounting for bad debts:
10. If a company uses the allowance method to account for doubtful accounts, when will the company’s equity
decrease?
11. The allowance for bad debts represents:
12. Digital Corporation
The following data concern Digital Corporation for 2012.
Credit sales during the year
$2,400,000
Accounts receivable—December 31, 2012
410,000
Allowance for bad debts—December 31, 2012
55,000
Bad debt expense for the year
35,000
Refer to the information provided for Digital Corporation. What amount will Digital show on its year-end balance sheet for the net realizable value
of its accounts receivable?
13. Digital Corporation
The following data concern Digital Corporation for 2012.
Credit sales during the year
$2,400,000
Accounts receivable—December 31, 2012
410,000
Allowance for bad debts—December 31, 2012
55,000
Bad debt expense for the year
35,000
Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital makes the adjustment to
record bad debt expense using the allowance method?
14. Digital Corporation
The following data concern Digital Corporation for 2012.
Credit sales during the year
$2,400,000
Accounts receivable—December 31, 2012
410,000
Allowance for bad debts—December 31, 2012
55,000
Bad debt expense for the year
35,000
Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital writes off a bad debt under
the allowance method?
15. On December 1, 2012, Alex’s Drug Store concluded that a customer’s $325 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on Alex’s 2012 net
income and balance sheet totals assuming the allowance method is used to account for bad debts?
16. Two methods of accounting for uncollectible accounts are the:
17. One of the weaknesses of the direct write-off method is that it:
18. If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited
19. Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with
revenue on the income statement?
20. Which of the following statements is true regarding the two allowance approaches used to estimate bad
debts?
21. Which one of the approaches for the allowance procedure emphasizes the net realizable value of accounts
receivable on the balance sheet?
22. Ready Corporation’s accounts receivable balance after posting net collections from customers for 2012 is
$190,000. Management feels that uncollected accounts should be based on the following aging of accounts
receivable and uncollected percentages. There are $120,000 that are 1 to 30 days past due at 3% and $70,000
that are 31 to 60 days past due at 8%. The net realizable value of the accounts receivable is:
23. Outlook Department Store’s accounts receivable balance after posting net collections from customers for
2012 is $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts
receivable and estimate for uncollected account percentages as follows:
$90,000
Current at 2%
$50,000
1-30 days past due at 5%
$30,000
31-60 days past due at 10%
$10,000
60+ days past due at 25%
The net realizable value of the accounts receivable is:
24. Collision Corporation
Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Credit Sales
$2,000,000
Sales returns and allowances
40,000
Accounts receivable (December 31, 2012)
610,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
15,000
Estimated amount of uncollected accounts based on aging analysis
55,000
Refer to the information provided for Collision Corporation. If Collision estimates its bad debts at 2% of net credit sales, what amount will be
reported as bad debt expense for 2012?
25. Collision Corporation
Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Credit Sales
$2,000,000
Sales returns and allowances
40,000
Accounts receivable (December 31, 2012)
610,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
15,000
Estimated amount of uncollected accounts based on aging analysis
55,000
Refer to the information presented for Collision Corporation. If Collision estimates its bad debt to be 2% of net credit sales, what will be the balance
in the Allowance for Bad Debts account after the adjustment for bad debts?
26. Collision Corporation
Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Credit Sales
$2,000,000
Sales returns and allowances
40,000
Accounts receivable (December 31, 2012)
610,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
15,000
Estimated amount of uncollected accounts based on aging analysis
55,000
Refer to the information provided for Collision Corporation. If Collision uses the aging of accounts receivable approach to estimate its bad debts,
what amount will be reported as bad debt expense for 2012?
27. Collision Corporation
Data for Collision Corporation for the year ended December 31, 2012, are presented below.
Credit Sales
$2,000,000
Sales returns and allowances
40,000
Accounts receivable (December 31, 2012)
610,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
15,000
Estimated amount of uncollected accounts based on aging analysis
55,000
Refer to the information provided for Collision Corporation. If Collision uses the aging of accounts receivable approach to estimate its bad debts,
what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
28. Profile Corporation
The following data concern Profile Corporation for 2012.
Accounts receivable—January 1, 2012
$ 250,000
Credit sales during 2012
1,000,000
Collections from credit customers during 2012
750,000
Allowance for bad debts—January 1, 2012
20,000
Estimated uncollected accounts based on an aging analysis
45,000
29. Profile Corporation
The following data concern Profile Corporation for 2012.
Accounts receivable—January 1, 2012
$ 250,000
Credit sales during 2012
1,000,000
Collections from credit customers during 2012
750,000
Allowance for bad debts—January 1, 2012
20,000
Estimated uncollected accounts based on an aging analysis
45,000
Refer to the data provided for Profile Corporation. If the aging approach is used to estimate bad debts, find the balance in the Allowance for Bad
Debts after the bad debt expense adjustment for 2012.
30. Bolt Corporation
The following data concern Bolt Corporation for 2012.
Accounts receivable—January 1, 2012
$455,000
Credit sales during 2012
900,000
Collections from credit customers during 2012
825,000
Allowance for bad debts before adjustment for the year
2,100
Estimated uncollected accounts based on an aging analysis
29,200
Refer to the information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad
debt expense for 2012?
31. Bolt Corporation
The following data concern Bolt Corporation for 2012.
Accounts receivable—January 1, 2012
$455,000
Credit sales during 2012
900,000
Collections from credit customers during 2012
825,000
Allowance for bad debts before adjustment for the year
2,100
Estimated uncollected accounts based on an aging analysis
29,200
Refer to information provided for Bolt Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance
for Bad Debts account be after the bad debts adjustment?
32. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to the information provided for Aspen Corporation. If Aspen estimates its bad debts at 4% of net credit sales, what amount will be reported as
bad debt expense for 2012?
33. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to the information provided for Aspen Corporation. If Aspen uses 4% of net credit sales to estimate its bad debts, what will be the balance in
the Allowance for Bad Debts account after the adjustment for bad debts?
34. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what amount
will be reported as bad debt expense for 2012?
35. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to the information provided for Aspen Corporation. If Aspen uses the aging of accounts receivable method to estimate its bad debts, what will
be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
36. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to data provided for Aspen Corporation. If Aspen estimates its bad debts at 8% of accounts receivable, what amount will be reported as bad
debt expense for 2012?
37. Aspen Corporation
Data for Aspen Corporation for the year ended December 31, 2012, are presented below.
Credit sales
$2,100,000
Sales returns
150,000
Gross accounts receivable (December 31, 2012)
420,000
Allowance for bad debts
(Before adjustment at December 31, 2012)
25,000
Estimated amount of uncollected accounts based on an aging analysis
75,000
Refer to the data provided for Aspen Corporation. If Aspen uses 8% of accounts receivables to estimate its bad debts, what will be the balance in the
Allowance for Bad Debts account after the adjustment for bad debts?
38. Tanning Company uses the percentage of receivables method for recording bad debts expense. The accounts
receivable balance is $300,000 and credit sales are $1,000,000. An aging of accounts receivable shows that 5%
will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Bad Debts
account has a credit balance of $2,000 before the adjustment?
39. Union Corporation reported net credit sales of $2,500,000 and cost of goods sold of $1,800,000 for 2012. Its
beginning balance of accounts receivable was $350,000. The accounts receivable balance decreased by $50,000
during 2012. Rounded to two decimal places, what is Union’s accounts receivable turnover ratio for 2012?
40. During 2012, the accounts receivable turnover ratio for Upward Company increased from 10 to 15 times per
year. Which one of the following statements is the most likely explanation for the change?
41. Bradford Corporation reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012.
On January 1, 2012, accounts receivable was $450,000. Amounts owed by customers increased by $50,000
during 2012. Rounding to two decimal places, what is Bradford’s receivable turnover ratio for 2012?
42. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the receivable turnover ratio:
Net sales
$450,000
Accounts receivable, 1/31/2011
$175,000
Operating income
$120,000
Accounts receivable, 1/31/2012
$125,000
Net income
$100,000
43. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the days-in-receivables ratio:
Net sales
$450,000
Accounts receivable, 1/31/2011
$175,000
Operating income
$120,000
Accounts receivable, 1/31/2012
$125,000
Net income
$100,000
44. Bradford Corporation reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012.
On January 1, 2012, accounts receivable was $450,000. Amounts owed by customers increased by $50,000
during 2012. Rounding the intermediate calculation to two decimal places, what is Bradford’s days-in–
receivables ratio for 2012?
45. The following information is available for Elson Corporation for fiscal year ending January 31, 2012.
Calculate the allowance ratio:
Net sales
$450,000
Accounts receivable, net
$175,000
Operating income
$120,000
Allowance for bad debts
$ 25,000
Net income
$100,000
46. Bradford Corporation reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012.
Allowance for bad debts was $40,000, ending 2012. Rounding to two decimal places, what is Bradford’s
allowance ratio for 2012?
47. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max’s balance sheet?
48. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max’s income
statement?
49. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max’s balance sheet in
2012?
50. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a vertical analysis of Max’s income statement
in 2012?
51. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s receivables turnover ratio in 2012?
52. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s days-in-receivables ratio in 2012?
53. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Net accounts receivable
$ 55,500
$ 43,200
Allowance for bad debts
2,220
1,700
Total assets
462,500
720,000
Cash flow from operations
314,500
316,800
Net sales
370,000
360,000
Cost of goods sold
185,000
190,000
Capital expenditures
50,000
25,000
Refer to the selected data provided for Max’s Tire Center. What is Max’s allowance ratio in 2012?
54. Receivables turnover ratio measures: