Chapter 8—Receivables Key
1. Notes Receivable and Accounts Receivable can also be called trade receivables.
2. Receivables not currently collectible are reported in the investments section of the balance sheet.
3. Trade receivables occur when two companies trade or exchange notes receivables.
4. Other receivables include non trade receivables such as loans to company officers.
5. Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.
6. When companies sell their receivables to other companies, the transaction is called factoring.
7. Of the two methods of accounting for uncollectible receivables, the allowance method provides in advance
for uncollectible receivables.
8. Generally accepted accounting principles do not normally allow the use of the direct write-off method of
accounting for uncollectible accounts.
9. The direct write-off method records Bad Debt Expense in the year the specific account receivable is
determined to be uncollectible.
10. When using the direct write-off method off accounting for uncollectible receivables, the account Allowance
for Doubtful Accounts is debited when a specific account is determined to be uncollectible.
11. When an account receivable that has been written off is subsequently collected, the account receivable is
said to be reinstated.
12. Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a
credit balance before adjusting entries are recorded at the end of the accounting period.
13. Allowance for Doubtful Accounts is a liability account.
14. When using the estimate based on sales method, the entry to record uncollectible accounts expense includes
a credit to the Accounts Receivable account.
15. The difference between the balance in Accounts Receivable and the balance in the Allowance for Doubtful
Accounts is called the net realizable value.
16. When the allowance method for accounting for uncollectible receivables is used, net income is reduced
when a specific receivable is written off.
17. At the end of a period, (before adjustment), Allowance for Doubtful Accounts has a credit balance of
$250. The net credit sales for the period total $500,000. If the company estimates uncollectible accounts
expense at 1% of net credit sales, the amount of bad debt expense to be recorded in an adjusting entry is
$4,750.
18. At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of
$500. Net credit sales for the period totaled $800,000. If bad debt expense is estimated at 1% of net credit
sales, the amount of bad debt expense to be recorded in the adjusting entry is $8,500.
19. At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $2,000.
The Accounts Receivable balance is analyzed by aging the accounts and the amount estimated to be
uncollectible is $15,000. The amount to be recorded in the adjusting entry for the bad debt expense is
$15,000.
20. At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of
$5,000. The Accounts Receivable balance is analyzed by aging the accounts and the amount estimated to be
uncollectible is $50,000. The amount to be recorded in the adjusting entry for the Bad Debt Expense is
$45,000.
21. When using the analysis of receivables method for estimating uncollectible receivables, the amount
computed in the analysis is usually the amount that would be recorded in the end-of-period adjusting entry.
22. The balance in the Allowance for Doubtful Accounts account at the end of the year includes the total of all
accounts written-off since the beginning year.
23. When accounting for uncollectible receivables and using the percentage of sales method, the matching
principle is violated.
24. A primary difference between the direct write-off and allowance method is whether or not bad debts is
based on a percentage of sales.
25. The due date of a 60-day note dated July 10 is September 10.
26. The maturity value of a 12%, 60-day note for $5,000 is $5,600.
27. The maturity value of a note receivable is always the same as its face value.
28. The interest on a 6%, 60-day note for $5,000 is $300.
29. The party promising to pay a note at maturity is the maker.
30. In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.
31. If a promissory note is dishonored, the payee should still record interest revenue.
32. The equation for computing interest on an interest-bearing note is as follows: interest equals maturity value
times interest rate times time.
33. If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.
34. When a note is received from a customer on account, it is recorded by debiting Notes Receivable and
crediting Accounts Receivable.
35. When a note is written to settle an open account, no entry is necessary.
36. The balance of the Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.
37. Receivables that are expected to be collected in cash in eighteen months or less are reported in the Current
Asset section of the balance sheet.
38. The accounts receivables turnover ratio is computed by dividing total gross sales by the average net
receivables during the year.
39. The accounts receivable turnover measures the length of time in days it takes to collect a receivable.
40. The number of days’ sales in receivables is an estimate of the length of time the accounts receivables have
been outstanding.
41. A note receivable due in 18 months is listed on the balance sheet under the caption
42. The receivable that is usually evidenced by a formal instrument of credit is a(n)
43. Which of the following receivables would not be classified as an “other receivable”?
44. Notes or accounts receivables that result from sales transactions are often called
45. The term “receivables” includes all
46. When does an account become uncollectible?
47. The two methods of accounting for uncollectible receivables are the allowance method and the
48. The direct write-off method of accounting for uncollectible accounts
49. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited
50. An alternative name for Bad Debt Expense is
51. Two methods of accounting for uncollectible accounts are the
52. If the direct write-off method of accounting for uncollectible receivables is used, what general ledger
account is credited to write off a customer’s account as uncollectible?
53. One of the weaknesses of the direct write-off method is that it
54. The Lowery Co. uses the direct write-off method of accounting for uncollectible accounts
receivable. Lowery has a customer whose accounts receivable balance has been determined to likely be
uncollectible. The entry to write off this account would be which of the following?:
55. If the direct write-off method of accounting for uncollectible receivables is used, what general ledger
account is debited to write off a customer’s account as uncollectible?
56. If the allowance method of accounting for uncollectible receivables is used, what general ledger account is
debited to write off a customer’s account as uncollectible?
57. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance
of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000. What is the net realizable value
of the accounts receivable?
58. If the allowance method of accounting for uncollectible receivables is used, what general ledger account is
credited to write off a customer’s account as uncollectible?
59. On the balance sheet, the amount shown for the Allowance for Doubtful Accounts is equal to the
60. What is the type of account and normal balance of Allowance for Doubtful Accounts?
61. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited
when
62. A debit balance in the Allowance for Doubtful Accounts
63. To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a
64. Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts
65. Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is
$390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the
outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the
Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?
66. You have just received notice that a customer of yours with an Account Receivable balance of $100 has
gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you
make is to
67. The balance in Allowance for Doubtful Accounts will directly impact the end of period adjustment for the
bad debt expense when using which of the following methods?
68. An aging of a company’s accounts receivable indicates the estimate of uncollectible receivables totals
$7,900. If Allowance for Doubtful Accounts has a $700 credit balance, the adjustment to record the bad debt
expense for the period will require a
69. An aging of a company’s accounts receivable indicates that the estimate of uncollectible accounts totals
$6,400. If Allowance for Doubtful Accounts has a $1,300 debit balance, the adjustment to record the bad debt
expense for the period will require a
70. An aging of a company’s accounts receivable indicates that estimate of the uncollectible accounts totals
$4,000. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record the bad debt
expense for the period will require a
71. The collection of an account that had been previously written off under the allowance method of accounting
for uncollectibles
72. Allowance for Doubtful Accounts has a credit balance of $2,100 at the end of the year (before adjustment),
and an analysis of customers’ accounts indicates uncollectible receivables of $19,700. Which of the following
entries records the proper adjustment for Bad Debt Expense?
73. Allowance for Doubtful Accounts has a debit balance of $1,100 at the end of the year (before adjustment),
and an analysis of customers’ accounts indicates uncollectible receivables of $12,900. Which of the following
entries records the proper adjustment for Bad Debt Expense?
74. Allowance for Doubtful Accounts has a debit balance of $600 at the end of the year (before adjustment),
and an analysis of accounts in the customers ledger indicates uncollectible receivables of $13,000. Which of
the following entries records the proper adjusting entry for bad debt expense?
75. At the beginning of the year, the balance in the Allowance for Doubtful Accounts is a credit of
$760. During the year, $120 of previously written-off accounts were reinstated and accounts totaling $740 are
written-off as uncollectible. The end of the year balance (before adjustment) in the Allowance for Doubtful
Accounts should be
76. Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific
receivable previously written off would include a
77. Dalton Company uses the allowance method to account for uncollectible receivables. Dalton has
determined that the Irish Company account is uncollectible. To write-off this account, Dalton should debit
78. In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly
impact the amount of the adjustment when applying which method?
79. Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates
that 3% of net credit sales will be uncollectible. On January 1, 2010, the Allowance for Doubtful Accounts had
a credit balance of $2,400. During 2010, Abbott wrote-off accounts receivable totaling $1,800 and made credit
sales of $100,000. There were no Sales Returns or Sales Discounts during the year. After the adjusting entry,
the December 31, 2010, balance in the Bad Debt Expense would be
80. A company uses the allowance method to account for uncollectible accounts receivables. When the firm
writes off a specific customer’s account receivable
81. Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before
adjustment). The company prepares an analysis of customers’ accounts to estimate the amount of uncollectible
accounts of $41,900. Which of the following adjusting entries would be made to record the Bad Debt Expense
for the year?
82. Allowance for Doubtful Accounts has a debit balance of $2,300 at the end of the year (before adjustment).
The company prepares an analysis of customers’ accounts and estimates the amount of uncollectible accounts to
be $31,900. Which of the following adjusting entries is needed to record the Bad Debt Expense for the year?
83. Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment),
and bad debt expense is estimated at 4% of net credit sales. If net credit sales are $800,000, the amount of the
adjusting entry to record the estimate of the uncollectible accounts is
84. Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment),
and an analysis of accounts in the customer ledger indicates the estimated amount of uncollectible accounts
should be $16,000. Based on the estimate above, which of the following adjusting entries should be made?
85. When using the allowance method to estimate uncollectible accounts receivable based on an analysis of
receivables shows that $640 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts
has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for
Doubtful Accounts in the amount of:
86. Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and bad debt expense is estimated at 3% of net credit sales. If net credit sales are $300,000, the amount of the
adjusting entry to record the estimated uncollectible accounts receivables is
87. Allowance for Doubtful Accounts is classified as a(n) ______ and has a normal ______ balance.
88. Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible
account.
89. When comparing the direct write-off method and the allowance method of accounting for uncollectible
receivables, a major difference is that the direct write-off method
90. When a company uses the allowance method of accounting for uncollectible receivables, which entry would
not be found in the general journal?
91. When a company uses the allowance method of accounting for uncollectible receivables, the entry to
reinstate a previously written off account would include:
92. The amount of a promissory note is called the
93. The amount of the promissory note plus the interest earned on the due date is called the
94. A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of
the note is
95. A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value
of the note is
96. Interest on a note can be calculated without knowledge of the
97. On October 1, Black Company receives a 9% interest bearing note from Reese Company to settle a $20,000
account receivable. The note is due in six months. At December 31, Black should record interest revenue of
98. If the maker of a promissory note fails to pay the note on the due date, the note is said to be
99. The journal entry to record a note received from a customer to replace an account is
100. A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal
entry to recognize this event is
101. When referring to a note receivable or promissory note
102. When a company receives an interest-bearing note receivable, it will
103. Paper Company receives a $6,000, 3-month, 6% promissory note from Dame Company in settlement of an
open accounts receivable. What entry will Paper Company make upon receiving the note?
104. The maturity value of a $40,000, 9%, 40-day note receivable dated July 3 is
105. Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note.
Harper Company prepares financial statements on March 31. What adjusting entry should be made before the
financial statements can be prepared?
106. On August 1, Kim Company accepted a 90-day note receivable as payment for services provided to Hsu
Company. The terms of the note were $20,000 face value and 6% interest. On October 30, the journal entry to
record the collection of the note should include a
107. Current assets are usually listed in order
108. Accounts Receivable Turnover measures
109. The number of days’ sales in receivables
110. Given the following information, compute Accounts Receivable Turnover:
Gross Sales: $150,000
Accounts Receivable, Beginning of Year: $18,000
Net Sales: $135,000
Accounts Receivable, End of Year: $22,000
111. At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful
Accounts has a credit balance of $5,500; and net sales for the year total $2,500,000. An analysis of receivables
estimates uncollectible receivables as $25,000.
Determine the amount of the adjusting entry for bad debt expense and the adjusted balance of Allowance of
Doubtful Accounts, respectively.
112. At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful
Accounts has a credit balance of $5,500; and net sales for the year total $2,500,000. An analysis of receivables
estimates uncollectible receivables as $25,000.
Determine the net realizable value of accounts receivable after adjustment. (Hint: Determine the amount of the
adjusting entry for bad debt expense and the adjusted balance Allowance of Doubtful Accounts.)
113. Match each of the following terms associated with the best description of that term.
Allowance for Doubtful
114. Match each of the following terms associated with notes receivable with the best description of that term.
1. The time between the date a note is issued and the due
4. The stated rate charged for using the money of another
6. The amount charged for using the money of another
7. A formal written instrument that represents amounts due
115. Other than accounts receivable and notes receivable, name other receivables that might be included in the
general ledger.