Chapter 8 – Receivables
73. Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts
a.
liabilities decrease
b.
net income is unchanged
c.
total assets are unchanged
d.
total assets decrease
74. 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?
a.
Bad Debt Expense 17,000
Allowance for Doubtful Accounts 17,000
b.
Bad Debt Expense 19,500
Allowance for Doubtful Accounts 19,500
c.
Bad Debt Expense 22,000
Allowance for Doubtful Accounts 22,000
d.
Bad Debt Expense 65,000
Allowance for Doubtful Accounts 65,000
75. 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
a.
debit Bad Debt Expense and credit Allowance for Doubtful Accounts
b.
debit Bad Debt Expense and credit Accounts Receivable
c.
debit Allowance for Doubtful Accounts and credit Accounts Receivable
d.
debit Allowance for Doubtful Accounts and credit Bad Debt Expense
Chapter 8 – Receivables
76. 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?
a.
allowance method based on aging the receivables
b.
direct write-off method
c.
accrual method
d.
declining value method
77. 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
a.
debit to Bad Debt Expense for $8,600
b.
debit to Bad Debt Expense for $7,900
c.
debit to Bad Debt Expense for $7,200
d.
credit to Allowance for Doubtful Accounts for $700
Chapter 8 – Receivables
78. 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
a.
debit to Bad Debt Expense for $7,700
b.
debit to Bad Debt Expense for $6,400
c.
debit to Bad Debt expense for $5,100
d.
credit to Allowance for Doubtful Accounts for $1,300
79. An aging of a company’s accounts receivable indicates that the 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
a.
debit to Allowance for Doubtful Accounts for $3,200
b.
debit to Bad Debt Expense for $3,200
c.
debit to Allowance for Doubtful Accounts for $4,000
d.
credit to Allowance for Doubtful Accounts for $4,000
Chapter 8 – Receivables
80. The collection of an account that had been previously written off under the allowance method of accounting for
uncollectibles
a.
will increase net income in the period it is collected
b.
will decrease net income in the period it is collected
c.
does not affect net income in the period it is collected
d.
requires a correcting entry for the period in which the account was written off
81. 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?
a.
debit Allowance for Doubtful Accounts, $17,600; credit Bad Debt Expense, $17,600
b.
debit Allowance for Doubtful Accounts, $21,800; credit Bad Debt Expense, $21,800
c.
debit Bad Debt Expense, $21,800; credit Allowance for Doubtful Accounts, $21,800
d.
debit Bad Debt Expense, $17,600; credit Allowance for Doubtful Accounts, $17,600
82. 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?
a.
debit Bad Debt Expense, $14,000; credit Allowance for Doubtful Accounts, $14,000
b.
debit Allowance for Doubtful Accounts, $14,000; credit Bad Debt Expense, $14,000
c.
debit Allowance for Doubtful Accounts, $11,800; credit Bad Debt Expense, $11,800
d.
debit Bad Debt Expense, $11,800; credit Allowance for Doubtful Accounts, $11,800
Chapter 8 – Receivables
83. 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?
a.
debit Bad Debt Expense, $600; credit Allowance for Doubtful Accounts, $600
b.
debit Bad Debt Expense, $12,400; credit Allowance for Doubtful Accounts, $12,400
c.
debit Allowance for Doubtful Accounts, $600; credit Bad Debt Expense, $600
d.
debit Bad Debt Expense, $13,600; credit Allowance for Doubtful Accounts, $13,600
84. At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year,
$120 of previously written off accounts are reinstated and accounts totaling $740 are written off as uncollectible. The
end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be
a.
$760
b.
$120
c.
$140
d.
$740
Chapter 8 – Receivables
85. Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit
sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct?
a.
Uncollectible accounts are estimated to be $55,500.
b.
Uncollectible accounts are estimated to be $111,000.
c.
Bad debt expense is estimated to be $5,550.
d.
Bad debt expense is estimated to be $11,100.
Uncollectible accounts = $5,550,000 × 0.02 = $111,000
86. Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit
sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct
regarding the entry to record estimated uncollectible receivables?
a.
Cash will be debited
b.
Bad Debt Expense will be credited
c.
Allowance for Doubtful Accounts will be credited
d.
Accounts Receivable will be debited
87. Miles uses the allowance method and wrote off the account of James. Miles then received $559 as partial payment on
the account of James. The journal entry to record the initial write-off includes a
a.
debit to Allowance for Doubtful Accounts
b.
credit to Cash
c.
debit to Accounts Receivable, James
d.
credit to Bad Debt Expense
Chapter 8 – Receivables
88. Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable
previously written off would include a
a.
credit to Bad Debt Expense
b.
credit to Accounts Receivable
c.
debit to Allowance for Doubtful Accounts
d.
debit to Accounts Receivable
89. 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
a.
Bad Debt Expense and credit Accounts Receivable
b.
Bad Debt Expense and credit Allowance for Doubtful Accounts
c.
Allowance for Doubtful Accounts and credit Accounts Receivable
d.
Accounts Receivable and credit Allowance for Doubtful Accounts
90. In accounting for uncollectible receivables, the balance in Allowance for Doubtful Accounts will directly impact the
amount of the adjustment when applying which method?
a.
direct write-off method
b.
percentage of sales method
c.
analysis of receivables method
d.
both percentage of sales and analysis of receivables methods
Chapter 8 – Receivables
91. Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of
credit sales will be uncollectible. On January 1, the Allowance for Doubtful Accounts had a credit balance of
$2,400. During the year, Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000. After
the adjusting entry, the December 31 balance in Bad Debt Expense will be
a.
$1,200
b.
$3,000
c.
$3,600
d.
$7,200
92. A company uses the allowance method to account for uncollectible accounts receivable. When the firm writes off a
specific customer’s account receivable
a.
total current assets are reduced
b.
total expenses for the period are increased
c.
net realizable value of accounts receivable increases
d.
there is no effect on total current assets or total expenses
93. 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?
a.
debit Allowance for Doubtful Accounts, $40,600; credit Bad Debt Expense, $40,600
b.
debit Allowance for Doubtful Accounts, $43,200; credit Bad Debt Expense, $43,200
c.
debit Bad Debt Expense, $43,200; credit Allowance for Doubtful Accounts, $43,200
d.
debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600
Chapter 8 – Receivables
94. 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?
a.
debit Bad Debt Expense, $34,200; credit Allowance for Doubtful Accounts, $34,200
b.
debit Allowance for Doubtful Accounts, $34,200; credit Bad Debt Expense, $34,200
c.
debit Allowance for Doubtful Accounts, $29,600; credit Bad Debt Expense, $29,600
d.
debit Bad Debt Expense, $29,600; credit Allowance for Doubtful Accounts, $29,600
95. 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 credit sales. If net credit sales are $800,000, the amount of the adjusting entry to
record the estimate of the uncollectible accounts is
a.
$29,500
b.
$34,500
c.
$32,000
d.
cannot be determined
Chapter 8 – Receivables
96. 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 this estimate, which of the following adjusting entries should be made?
a.
debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
b.
debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
c.
debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
d.
debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800
97. The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that
$640 of accounts receivable 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:
a.
$110
b.
$640
c.
$530
d.
$750
98. 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 credit sales. If credit sales are $300,000, the amount of the adjusting entry to record the
estimated uncollectible accounts receivable is
a.
$8,500
b.
$9,500
c.
$9,000
d.
Cannot be determined
Chapter 8 – Receivables
99. Allowance for Doubtful Accounts is classified as a(n) ______ account and has a normal ______ balance.
a.
owners’ equity, credit
b.
contra asset, debit
c.
owners’ equity, debit
d.
contra asset, credit
100. Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account
a.
affects only income statement accounts
b.
is not an acceptable practice
c.
affects only balance sheet accounts
d.
affects both balance sheet and income statement accounts
101. 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
a.
uses a percentage of sales method to estimate uncollectible accounts
b.
is used primarily by large companies with many receivables
c.
is used primarily by small companies with few receivables
d.
uses an allowance account
Chapter 8 – Receivables
102. When a company uses the allowance method of accounting for uncollectible receivables, which entry would not be
found in the general journal?
a.
Bad Debt Expense 500
Allowance for Doubtful Accounts 500
b.
Bad Debt Expense 500
Accounts Receivable, Bob Smith 500
c.
Cash 300
Allowance for Doubtful Accounts 200
Accounts Receivable, Bob Smith 500
d.
Cash 500
Accounts Receivable, Bob Smith 500
103. When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a
previously written off account would include a
a.
credit to Bad Debt Expense
b.
debit to Bad Debt Expense
c.
debit to Allowance for Doubtful Accounts
d.
credit to Allowance for Doubtful Accounts
104. The amount for which a promissory note is written is called the
a.
realizable value
b.
maturity value
c.
face value
d.
proceeds
Chapter 8 – Receivables
105. The amount of the promissory note plus the interest earned on the due date is called the
a.
interest value
b.
maturity value
c.
face value
d.
issuance value
106. 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
a.
$6,860
b.
$7,140
c.
$7,840
d.
$7,000
107. 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
a.
$10,000
b.
$10,150
c.
$10,900
d.
$9,100
Chapter 8 – Receivables
108. Interest on a note can be calculated without knowledge of the
a.
fair value of the note
b.
rate of interest
c.
note duration
d.
principal amount
109. 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
a.
$0
b.
$450
c.
$900
d.
$1,800
Interest revenue = $20,000 × 0.09 × (3 / 12) = $450
110. If the maker of a promissory note fails to pay the note on the due date, the note is said to be
a.
displaced
b.
disallowed
c.
dishonored
d.
discounted
Chapter 8 – Receivables
111. The journal entry to record a note received from a customer to replace an account is
a.
debit Notes Receivable; credit Accounts Receivable
b.
debit Accounts Receivable; credit Notes Receivable
c.
debit Cash; credit Notes Receivable
d.
debit Notes Receivable; credit Notes Payable
112. 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
a.
debit Cash, $6,120; credit Notes Receivable, $6,120
b.
debit Notes Receivable, $6,120; credit Accounts Receivable, $6,000; credit Interest Receivable, $120
c.
debit Notes Receivable, $6,060; credit Accounts Receivable, $6,060
d.
debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; credit Interest Revenue, $120
113. When referring to a note receivable or promissory note
a.
the maker is the party to whom the money is due
b.
the note is not considered a formal credit instrument
c.
the note cannot be factored to another party
d.
the note may be used to settle an accounts receivable
Chapter 8 – Receivables
114. When a company receives an interest-bearing note receivable, it will
a.
debit Notes Receivable for the maturity value of the note
b.
debit Notes Receivable for the face value of the note
c.
credit Notes Receivable for the maturity value of the note
d.
credit Notes Receivable for the face value of the note
115. 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?
a.
Notes Receivable—Dame Company 6,000
Accounts Receivable—Dame Company 6,000
b.
Notes Receivable—Dame Company 6,090
Accounts Receivable—Dame Company 6,090
c.
Notes Receivable—Dame Company 6,090
Accounts Receivable—Dame Company 6,000
Interest Revenue 90
d.
Notes Receivable—Dame Company 6,000
Interest Revenue 90
Accounts Receivable—Dame Company 6,000
Interest Receivable 90
116. The maturity value of a $40,000, 9%, 40-day note receivable dated July 3 is
a.
$40,000
b.
$40,400
c.
$43,600
d.
$44,000
Chapter 8 – Receivables
117. 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?
a.
Cash 200
Interest Revenue 200
b.
Interest Receivable 800
Interest Revenue 800
c.
Interest Receivable 200
Interest Revenue 200
d.
Note Receivable 40,000
Cash 40,000
118. 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
a.
credit to Notes Receivable for $20,300
b.
debit to Interest Receivable for $300
c.
credit to Interest Revenue for $300
d.
debit to Notes Receivable for $20,000
Interest Revenue to be credited = $20,000 × 0.06 × (90 / 360) = $300
Chapter 8 – Receivables
119. Current assets are usually listed in order
a.
of the due date
b.
of the size
c.
alphabetically
d.
of liquidity
120. The accounts receivable turnover measures
a.
how frequently during the year the accounts receivable are converted to cash
b.
the number of days of accounts receivable outstanding
c.
the fair market value of accounts receivable
d.
the efficiency of the accounts payable function
121. The number of days’ sales in receivables
a.
is an estimate of the length of time the receivables have been outstanding
b.
measures the number of times the receivables turn over each year
c.
is credit sales divided by average receivables
d.
is not meaningful and therefore is not used
Chapter 8 – Receivables
122. Given the following information, compute accounts receivable turnover:
Gross sales $150,000
Accounts receivable, beginning of year $18,000
Sales 135,000
Accounts receivable, end of year 22,000
a.
6.75
b.
7.50
c.
6.13
d.
6.82
123. 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 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 for Doubtful
Accounts, respectively.
a.
$19,500 and $25,000
b.
$30,500 and $525,000
c.
$19,500 and $525,000
d.
$30,500 and $25,000
Chapter 8 – Receivables
124. 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 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 of Allowance for Doubtful Accounts.)
a.
$550,000
b.
$544,500
c.
$525,000
d.
$575,000
125. Other than Accounts Receivable and Notes Receivable, name other receivables that might be included in the general
ledger.
126. Discuss the similarities and differences between accounts receivable, notes receivable, and other receivables.