CHAPTER 9: RECEIVABLES
1.
SALESNotes Receivable and Accounts Receivable can also be called trade receivables.
a.
True
b.
False
2.
Receivables not currently collectible are reported in the investments section of the balance sheet.
a.
True
b.
False
3.
Trade receivables occur when two companies trade or exchange notes receivables.
a.
True
b.
False
4.
Other receivables include nontrade receivables such as loans to company officers.
a.
True
b.
False
Chapter 9: Receivables
5.
Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.
a.
True
b.
False
6.
When companies sell their receivables to other companies, the transaction is called factoring.
a.
True
b.
False
7.
Of the two methods of accounting for uncollectible receivables, the allowance method provides in
advance for
uncollectible receivables.
a.
True
b.
False
Chapter 9: Receivables
8.
A disadvantage of factoring is that the company selling its receivables immediately receives cash.
a.
True
b.
False
9.
Small companies can use either the direct write-off method or the allowance method.
a.
True
b.
False
10.
GAAP requires companies with a large amount of receivables to use the allowance method.
a.
True
b.
False
Chapter 9: Receivables
11.
The direct write-off method records bad debt expense when an account is determined to be uncollectible.
a.
True
b.
False
12.
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
13.
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 9: Receivables
14.
No allowance account is used with the direct write-off method.
a.
True
b.
False
15.
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
16.
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
Chapter 9: Receivables
17.
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
18.
Allowance for Doubtful Accounts is a liability account.
a.
True
b.
False
19.
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
Chapter 9: Receivables
20.
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
21.
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
22.
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.
a.
True
b.
False
Chapter 9: Receivables
23.
At the end of a period (before adjustment), Allowance for Doubtful Accounts has a debit balance of $500.
Net
credit sales for the period total $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.
a.
True
b.
False
24.
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
25.
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
Chapter 9: Receivables
26.
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
27.
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
28.
When accounting for uncollectible receivables and using the percentage of sales method, the matching
principle is
violated.
a.
True
b.
False
Chapter 9: Receivables
29.
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
30.
The due date of a 60-day note dated July 10 is September 10.
a.
True
b.
False
31.
The maturity value of a 12%, 60-day note for $5,000 is $5,600.
a.
True
b.
False
Chapter 9: Receivables
32.
The maturity value of a note receivable is always the same as its face value.
a.
True
b.
False
33.
The interest on a 6%, 60-day note for $5,000 is $300.
a.
True
b.
False
34.
The party promising to pay a note at maturity is the maker.
a.
True
b.
False
35.
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
Chapter 9: Receivables
36.
If a promissory note is dishonored, the payee should still record interest revenue.
a.
True
b.
False
37.
The equation for computing interest on an interest-bearing note is as follows: Interest = Maturity Value ×
Interest
Rate × Time.
a.
True
b.
False
38.
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
Chapter 9: Receivables
39.
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
40.
When a note is written to settle an open account, no entry is necessary.
a.
True
b.
False
41.
The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.
a.
True
b.
False
Chapter 9: Receivables
42.
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
43.
The accounts receivables turnover ratio is computed by dividing total gross sales by the average net
receivables
during the year.
a.
True
b.
False
44.
The accounts receivable turnover measures the length of time in days it takes to collect a receivable.
a.
True
b.
False
Chapter 9: Receivables
45.
The number of days’ sales in receivables is an estimate of the length of time the accounts receivables have been
outstanding.
a.
True
b.
False
46.
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
47.
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 9: Receivables
48.
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
49.
Other receivables includes all of the following except
a.
notes receivable
b.
receivables from employees
c.
taxes receivable
d.
interest receivable
50.
Notes or accounts receivables that result from sales transactions are often called
a.
nontrade receivables
b.
trade receivables
c.
merchandise receivables
d.
sales receivables
Chapter 9: Receivables
51.
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.
52.
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
53.
If collection of another receivable is expected beyond one year, it is classified as a(n)
a.
other receivable under noncurrent assets
b.
other receivable under current assets
c.
investment under current assets
d.
investment under noncurrent assets
Chapter 9: Receivables
54.
When does an account become uncollectible?
a.
when accounts receivable is converted into notes receivable
b.
when a discount is availed on notes receivable
c.
there is no general rule for when an account becomes uncollectible
d.
at the end of the fiscal year
55.
The two methods of accounting for uncollectible receivables are the allowance method and the
a.
equity method
b.
direct write-off method
c.
interest method
d.
cost method
56.
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 9: Receivables
57.
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
58.
An alternative name for bad debt Expense is a(n)
a.
collection expense
b.
credit loss expense
c.
uncollectible accounts expense
d.
deadbeat expense
59.
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 9: Receivables
60.
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
61.
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
62.
Selling receivables is called
a.
factoring
b.
sales revenue
c.
a factor
d.
sold receivables