12) Receivables of a company CANNOT be long-term assets.
13) When a customer fails to pay on their account, it creates a(n):
A) note receivable.
B) uncollectible account.
C) account receivable.
D) decrease in revenue.
14) What type of account is Allowance for Doubtful Accounts?
A) A contra-asset account
B) An expense account
C) A contra-liability account
D) A revenue account
15) Which of the following is TRUE?
A) The allowance method requires a business to estimate bad debt expense.
B) The allowance method requires a business to record only actual bad debt expense.
C) The allowance method allows a business to choose between recording actual or estimated bad
debt expense.
D) The allowance method does not relate to bad debts expense. It is a method used to prepare a
bank reconciliation.
16) Once an Account Receivable is written off, can a business ever collect that money?
A) No, GAAP does not allow a company to collect any amounts from a customer who has had an
account written off.
B) Only when using the direct write-off method can a company collect from a customer who has
had an account written off.
C) Only when using the allowance method can a company collect from a customer who has had
an account written off.
D) Both the allowance and direct write-off methods permit a company to collect from a customer
who has had an account written off.
17) The period end adjusting entry for bad debt expense under the direct write-off method is:
A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
B) not required.
C) Cash, debit; Accounts Receivable/customer name, credit.
D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.
18) The journal entry to write off a customer’s account under the direct write-off method is:
A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
B) not required.
C) Cash, debit; Accounts Receivable/customer name, credit.
D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.
19) Under the direct write-off method, to record the receipt of cash after an account has
previously being written off, you would first:
A) debit Cash and credit the customer’s account.
B) reinstate the customer’s account.
C) debit Allowance for Doubtful Accounts.
D) debit Bad Debt Expense.
20) The period end adjusting entry for bad debt expense under the allowance method is:
A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
B) not required.
C) Cash, debit; Accounts Receivable/customer name, credit.
D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.
21) The journal entry to write off a customer’s account under the allowance method is:
A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
B) not required.
C) Allowance for Uncollectible Accounts, debit; Accounts Receivable/customer name, credit.
D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.
22) Under the allowance method, to record the receipt of cash after an account has previously
being written off, you would first:
A) debit Cash and credit the customer’s account.
B) reinstate the customer’s account.
C) debit Allowance for Doubtful Accounts.
D) debit Bad Debt Expense.
23) A company has $235,000 in credit sales. The company uses the allowance method to account
for uncollectible accounts. The Allowance for Doubtful Accounts now has a $7,250 credit
balance. If the company estimates 7% of credit sales will be uncollectible, what will be the
amount of the journal entry to record estimated uncollectible accounts?
A) $16,450
B) $23,700
C) $7,250
D) $9,200
24) A company has $317,000 in credit sales. The company uses the allowance method to account
for uncollectible accounts. The Allowance for Doubtful Accounts now has an $8,150 debit
balance. If the company estimates 6% of credit sales will be uncollectible, what will be the
amount of the journal entry to record estimated uncollectible accounts?
A) $8,150
B) $27,170
C) $10,870
D) $19,020
25) A company has $286,000 in credit sales. The company uses the allowance method to account
for uncollectible accounts. The Allowance for Doubtful Accounts now has a $2,280 credit
balance. If the company estimates that $7,640 of accounts will be uncollectible based on an
aging of Accounts Receivable, what will be the amount of the journal entry to record estimated
uncollectible accounts?
A) $7,640
B) $9,920
C) $4,560
D) $5,360
26) A company has $314,000 in credit sales. The company uses the allowance method to account
for uncollectible accounts. The Allowance for Doubtful Accounts now has a $1,890 debit
balance. If the company estimates that $8,160 of accounts will be uncollectible based on an
aging of Accounts Receivable, what will be the amount of the journal entry to record estimated
uncollectible accounts?
A) $8,160
B) $6,270
C) $10,050
D) $3,780
27) Joe is a customer of Hopts, Inc. His current balance due is $1,560. It has been determined
that he defaulted on his account. If the company uses the direct write-off method, what entry is
necessary to write off the $1,560?
A) No entry will be necessary.
B) Debit Accounts Receivable/Joe; credit Bad Debt Expense.
C) Debit Bad Debt Expense; credit Accounts Receivable/Joe.
D) Debit Bad Debt Expense; credit Allowance for Doubtful Accounts.
28) Ben is a customer of Haskins & Co. which uses the allowance method to account for
uncollectible accounts. The company wrote off his account of $1,200 on August 15. On October
12, he sent in a payment of $560. What will Haskins & Co. record first to reinstate his account?
A) Debit Cash; credit Accounts Receivable/Ben.
B) Debit Bad Debt Expense; credit Accounts Receivable/Ben.
C) Debit Allowance for Doubtful Accounts; credit Accounts Receivable/Ben.
D) Debit Accounts Receivable/Ben; credit Allowance for Doubtful Accounts.
29) Piper, Inc. had credit sales for the period of $85,000. The balance in Allowance for Doubtful
Accounts is a debit of $817. How much will the credit be to Allowance for Doubtful Accounts if
Piper uses the percent of credit sales method of estimating uncollectible accounts and they
estimate that 5% of credit sales will be uncollectible?
A) $3,433
B) $4,291
C) $5,067
D) $4,250
30) Piper, Inc. had credit sales for the period of $85,000. The balance in Allowance for Doubtful
Accounts is a debit of $817. What is the credit to Allowance for Doubtful Accounts if Piper uses
the aging method to estimate uncollectible accounts and an aging of Accounts Receivable
reflected an estimated amount of uncollectible accounts of $6,342?
A) $7,159
B) $5,525
C) $6,342
D) $4,250
31) Charmed, Inc. had credit sales for the period of $142,000. The balance in Allowance for
Doubtful Accounts is a debit of $643. If Charmed estimates that 2% of credit sales will be
uncollectible, what is the required journal entry to record estimated uncollectible accounts?
A) Debit Bad Debt Expense, $2,840; credit Allowance for Uncollectible Accounts, $2,840.
B) No entry is required.
C) Debit Bad Debt Expense, $3,483; credit Allowance for Uncollectible Accounts, $3,483.
D) Debit Bad Debt Expense, $2,197; credit Allowance for Uncollectible Accounts, $2,197.
32) Charmed, Inc. had credit sales for the period of $142,000. The balance in Allowance for
Doubtful Accounts is a debit of $643. If Charmed ages Accounts Receivable and determines
estimated uncollectible accounts to be $2,840, what is the required journal entry to record
estimated uncollectible accounts?
A) Debit Bad Debt Expense, $2,840; credit Allowance for Uncollectible Accounts, $2,840.
B) No entry is required.
C) Debit Bad Debt Expense, $3,483; credit Allowance for Uncollectible Accounts, $3,483.
D) Debit Bad Debt Expense, $2,197; credit Allowance for Uncollectible Accounts, $2,197.
33) Robbins Company has given you the following information from its aging of Accounts
Receivable. Using this information, determine the amount of the journal entry to record the
estimated uncollectible accounts.
Current
$24,400
2% uncollectible
31-60 days
7,350
8% uncollectible
61-90 days
3,380
15% uncollectible
91 and up
1,220
30% uncollectible
The current balance in Allowance for Doubtful Accounts is a $958 credit.
A) $2,457
B) $1,949
C) $991
D) $541
34) Capital Masonry has given you the following information from its aging of Accounts
Receivable. Using this information, determine the amount of the journal entry to record the
estimated uncollectible accounts.
Current
$22,000
1% uncollectible
31-60 days
5,500
6% uncollectible
61-90 days
2,400
10% uncollectible
91 and up
900
18% uncollectible
The current balance in Allowance for Doubtful Accounts is a $146 debit.
A) $952
B) $1,098
C) $1,759
D) $806
35) Cypress Co. has given you the following information from its aging of Accounts Receivable.
Using this information, determine the amount of the journal entry to record the estimated
uncollectible accounts.
Current
$20,000
2% uncollectible
31-60 days
6,500
5% uncollectible
61-90 days
3,400
11% uncollectible
91 and up
850
16% uncollectible
The current balance in Allowance for Doubtful Accounts is a $326 debit.
A) $909
B) $1,235
C) $1,561
D) $1,887
36) Thames, Inc. has given you the following information from its aging of Accounts
Receivable. Using this information, determine the amount of the journal entry to record the
estimated uncollectible accounts.
Current
$18,000
3% uncollectible
31-60 days
2,600
7% uncollectible
61-90 days
1,300
12% uncollectible
91 and up
650
20% uncollectible
The current balance in Allowance for Doubtful Accounts is a $152 credit.
A) $856
B) $1,008
C) $1,160
D) None of the above
37) When using the allowance method for uncollectible accounts, the percent-of-sales method is
called the:
A) Balance Sheet approach.
B) Income Statement approach.
C) allowance approach.
D) direct write-off approach.
38) When using the allowance method for uncollectible accounts, the aging method is called the:
A) Balance Sheet approach.
B) Income Statement approach.
C) allowance approach.
D) direct write-off approach.
7.5 Questions
1) Accounts Receivable are reported at current market value in the Current Assets sections of the
Balance Sheet.
2) Accounts Receivable may be reported net of Allowance for Doubtful Accounts.
3) Accounts Receivable should be reported at ________ in the ________ section of a company’s
Balance Sheet.
A) Market value; Long-Term Assets
B) Net realizable value; Long-Term Assets
C) Net realizable value; Current Assets
D) Market value; Current Assets
4) How are net realizable receivables calculated?
A) Accounts Receivable plus the Allowance for Doubtful Accounts
B) Allowance for Doubtful Accounts plus NSF checks
C) Accounts Receivable less the Allowance for Doubtful Accounts
D) Accounts Receivable divided by the Allowance for Doubtful Accounts
5) Allied Inc. has an Account Receivable balance of $24,500 and its Allowance for Uncollectible
Accounts balance is $1,250. How will this be reported on the Balance Sheet?
A) Accounts Receivable 24,500
Less: Allowance for Uncollectible Accounts 250
Accounts Receivable, Net $23,250
B) Accounts Receivable $23,250
C) Accounts Receivable, Net of Allowance for Uncollectible Accounts of $1,250 $23,250
D) Both A and C are acceptable ways to report Accounts Receivable.
7.6 Questions
1) A promissory note is a verbal promise to pay a specified amount of money on a particular
future date.
2) The business or person that signs the note and promises to pay the required amount is called
the payee.
3) The amount loaned out by the payee is called the maturity value.
4) The maturity value is the sum of the principal plus the interest due at maturity.
5) Interest is an expense to the debtor and income to the creditor.
6) Interest rates are almost always stated for a period of one month.
7) A 4-month promissory note dated on July 17 will be due on November 17.
8) A 77-day note dated March 3, 2010 will be due on May 20.
9) The payee of a note is also called the creditor.
10) When counting the days of a note, one should remember to count the day the note was
issued.
11) Using a 360-day year, the maturity value of a 90-day note for $3,500 at 8% annual interest is:
A) $3,780.
B) $3,710.
C) $3,570.
D) $3,500.
12) Using a 360-day year, the maturity value of a 60-day note for $1,500 at 7% annual interest is
(rounded to the nearest cent):
A) $1,605.00.
B) $1,482.50.
C) $1,517.50.
D) $17.50.
13) Using a 365-day year, the maturity value of a 180-day note for $2,700 at 9% annual interest
is (rounded to the nearest cent):
A) $2,943.00.
B) $2,821.50.
C) $2,819.84.
D) $119.84.