Chapter 8 – Receivables
1. Receivables not currently collectible are reported in the investments section of the balance sheet.
a.
True
b.
False
2. Trade receivables occur when two companies trade or exchange notes receivable.
a.
True
b.
False
3. Other receivables include nontrade receivables such as loans to company officers.
a.
True
b.
False
4. Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.
a.
True
b.
False
Chapter 8 – Receivables
5. When companies sell their receivables to other companies, the transaction is called factoring.
a.
True
b.
False
6. Of the two methods of accounting for uncollectible receivables, the allowance method provides in advance for
uncollectible receivables.
a.
True
b.
False
7. A disadvantage of factoring is that the company selling its receivables immediately receives cash.
a.
True
b.
False
8. Small companies can use either the direct write-off method or the allowance method.
a.
True
b.
False
Chapter 8 – Receivables
9. GAAP requires companies with a large amount of receivables to use the allowance method.
a.
True
b.
False
10. The direct write-off method records bad debt expense when an account is determined to be uncollectible.
a.
True
b.
False
11. Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting
for uncollectible accounts.
a.
True
b.
False
12. The direct write-off method records bad debt expense in the year the specific account receivable is determined to be
uncollectible.
a.
True
b.
False
Chapter 8 – Receivables
13. No allowance account is used with the direct write-off method.
a.
True
b.
False
14. When using the direct write-off method of accounting for uncollectible receivables, the account Allowance for
Doubtful Accounts is debited when a specific account is determined to be uncollectible.
a.
True
b.
False
15. When an account receivable that has been written off is subsequently collected, the account receivable must first be
reinstated before recording the receipt of payment.
a.
True
b.
False
16. 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.
a.
True
b.
False
Chapter 8 – Receivables
17. Allowance for Doubtful Accounts is a liability account.
a.
True
b.
False
18. When using the percent of sales method of estimating uncollectibles, the entry to record bad debt expense includes a
credit to Accounts Receivable.
a.
True
b.
False
19. The difference between the balance in Accounts Receivable and the balance in the Allowance for Doubtful Accounts
is called the net realizable value of the receivables.
a.
True
b.
False
20. When the allowance method for accounting for uncollectible receivables is used, net income is reduced when a
specific receivable is written off.
a.
True
b.
False
Chapter 8 – Receivables
21. At the end of a period (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The credit
sales for the period total $500,000. If the company estimates uncollectible accounts at 1% of credit sales, the amount of
bad debt expense to be recorded in an adjusting entry is $4,750.
a.
True
b.
False
22. At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $500. Credit
sales for the period total $800,000. If bad debt expense is estimated at 1% of credit sales, the amount of bad debt expense
to be recorded in the adjusting entry is $8,500.
a.
True
b.
False
23. 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.
a.
True
b.
False
Chapter 8 – Receivables
24. 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.
a.
True
b.
False
25. 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.
a.
True
b.
False
26. The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off
since the beginning of the year.
a.
True
b.
False
27. When accounting for uncollectible receivables and using the percentage of sales method, the matching principle is
violated.
a.
True
b.
False
Chapter 8 – Receivables
28. A primary difference between the direct write-off and allowance method is whether or not bad debts is based on a
percentage of sales.
a.
True
b.
False
29. The due date of a 60-day note dated July 10 is September 10.
a.
True
b.
False
30. The maturity value of a 12%, 60-day note for $5,000 is $5,600.
a.
True
b.
False
$5,100
31. The maturity value of a note receivable is always the same as its face value.
a.
True
b.
False
Chapter 8 – Receivables
32. The interest on a 6%, 60-day note for $5,000 is $300.
a.
True
b.
False
33. The party promising to pay a note at maturity is the maker.
a.
True
b.
False
34. In computing the maturity date of a note, the date the note is issued is included but the due date is omitted.
a.
True
b.
False
35. If a promissory note is dishonored, the payee should still record interest revenue.
a.
True
b.
False
Chapter 8 – Receivables
36. The equation for computing interest on an interest-bearing note is as follows: Interest = Maturity Value × Interest Rate
× Time.
a.
True
b.
False
37. If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.
a.
True
b.
False
38. When a note is received from a customer on account, it is recorded by debiting Notes Receivable and crediting
Accounts Receivable.
a.
True
b.
False
39. When a note is written to settle an open account, no entry is necessary.
a.
True
b.
False
Chapter 8 – Receivables
40. The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.
a.
True
b.
False
41. 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.
a.
True
b.
False
42. The accounts receivable turnover ratio is computed by dividing total gross sales by the average net receivables during
the year.
a.
True
b.
False
Chapter 8 – Receivables
43. The accounts receivable turnover measures the length of time in days it takes to collect a receivable.
a.
True
b.
False
44. The number of days’ sales in receivables is an estimate of the length of time the accounts receivable have been
outstanding.
a.
True
b.
False
45. A note receivable due in 18 months is listed on the balance sheet under the caption
a.
long-term liabilities
b.
fixed assets
c.
current assets
d.
investments
46. The receivable that is usually evidenced by a formal, written instrument of credit is a(n)
a.
trade receivable
b.
note receivable
c.
accounts receivable
d.
income tax receivable
Chapter 8 – Receivables
47. Which of the following receivables would not be classified as an “other receivable”?
a.
advance to an employee
b.
interest receivable
c.
refundable income tax
d.
notes receivable
48. Notes or accounts receivable that result from sales transactions are often called
a.
nontrade receivables
b.
trade receivables
c.
merchandise receivables
d.
sales receivables
49. Which statement is not true?
a.
Current assets are normally reported in order of their liquidity.
b.
Disclosures related to receivables are reported on the financial statement notes.
c.
Cash and cash equivalents are the first items reported under current assets.
d.
All receivables that are expected to be realized in cash beyond 265 days are reported in the non-current assets
section.
Chapter 8 – Receivables
50. The term “receivables” includes all
a.
money claims against other entities
b.
merchandise to be collected from individuals or companies
c.
cash to be paid to creditors
d.
cash to be paid to debtors
51. If collection of an other receivable is expected beyond one year, it is classified as a
a.
noncurrent asset and reported under Other Receivables
b.
current asset and reported under Other Receivables
c.
current asset and reported under Investments
d.
noncurrent asset and reported under Investments
52. When does an account become uncollectible?
a.
when accounts receivable is converted into notes receivable
b.
when a discount is available on notes receivable
c.
there is no general rule for when an account becomes uncollectible
d.
at the end of the fiscal year
53. The direct write-off method of accounting for uncollectible accounts
a.
emphasizes balance sheet relationships
b.
is often used by small companies and companies with few receivables
c.
emphasizes cash realizable value
d.
emphasizes the matching of expenses with revenues
Chapter 8 – Receivables
54. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited
a.
at the end of each accounting period
b.
when a credit sale is past due
c.
whenever a predetermined amount of credit sales have been made
d.
when an account is determined to be worthless
55. An alternative name for Bad Debt Expense is
a.
collection expense
b.
credit loss expense
c.
uncollectible accounts expense
d.
deadbeat expense
56. Two methods of accounting for uncollectible accounts are the
a.
direct write-off method and the allowance method
b.
allowance method and the accrual method
c.
allowance method and the net realizable method
d.
direct write-off method and the accrual method
Chapter 8 – Receivables
57. The operating expense recorded from uncollectible receivables can be called all of the following except
a.
accounts receivable
b.
bad debt expense
c.
doubtful accounts expense
d.
uncollectible accounts expense
58. Indications that an account may be uncollectible include all of the following except
a.
the customer closes its business
b.
the customer is making small but regular payments
c.
the customer files for bankruptcy
d.
the customer cannot be located
59. Selling receivables is called
a.
factoring
b.
sales revenue
c.
a factor
d.
sold receivables
60. 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?
a.
Bad Debt Expense
b.
Accounts Receivable
c.
Allowance for Doubtful Accounts
d.
Interest Expense
Chapter 8 – Receivables
61. 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?
a.
debit Allowance for Doubtful Accounts; credit Accounts Receivable
b.
debit Sales; credit Accounts Receivable
c.
debit Bad Debt Expense; credit Allowance for Doubtful Accounts
d.
debit Bad Debt Expense; credit Accounts Receivable
62. 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?
a.
Uncollectible Accounts Receivable
b.
Accounts Receivable
c.
Allowance for Doubtful Accounts
d.
Bad Debt Expense
63. The direct write-off method:
a.
may be used only by businesses with five or fewer accounts receivable.
b.
is used by businesses whose receivables are a small part of their current assets.
c.
may not be used by companies that accept MasterCard or VISA.
d.
does not allow for reinstatement if the amount owed is received after being written off.
Chapter 8 – Receivables
64. When an account receivable is written off under the direct write-off method, the accounting equation is kept in balance
because:
a.
assets and equity both decrease by the same amount.
b.
assets both increase and decrease by the same amount.
c.
assets and equity both increase by the same amount.
d.
equity both increases and decreases by the same amount.
65. 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?
a.
Uncollectible Accounts Expense
b.
Allowance for Doubtful Accounts
c.
Accounts Receivable
d.
Interest Expense
66. 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?
a.
$51,000
b.
$289,000
c.
$340,000
d.
$391,000
Allowance for doubtful accounts = $340,000 − $51,000 = $289,000
Chapter 8 – Receivables
67. 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?
a.
Uncollectible Accounts Expense
b.
Accounts Receivable
c.
Allowance for Doubtful Accounts
d.
Interest Expense
68. On the balance sheet after adjusting entries are made, the amount shown for the Allowance for Doubtful Accounts is
equal to the
a.
uncollectible accounts expense for the year
b.
total of the accounts receivable written off during the year
c.
total estimated uncollectible accounts as of the end of the year
d.
sum of all accounts that are past due
69. What is the type of account and normal balance of Allowance for Doubtful Accounts?
a.
contra asset, credit
b.
asset, debit
c.
asset, credit
d.
contra asset, debit
Chapter 8 – Receivables
70. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
a.
a customer’s account becomes past due
b.
an account becomes bad and is written off
c.
a sale is made
d.
management estimates the amount of uncollectibles
71. A debit balance in the Allowance for Doubtful Accounts
a.
is the normal balance for that account
b.
indicates that actual bad debt write-offs have been less than what was estimated
c.
cannot occur if the percentage of receivables method of estimating bad debts is used
d.
indicates that actual bad debt write-offs have exceeded previous provisions for bad debts
72. To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a
a.
debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
b.
debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
c.
debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
d.
debit to Loss on Credit Sales and a credit to Accounts Receivable