FOR INSTRUCTOR USE ONLY
CHAPTER 8
REPORTING AND ANALYZING RECEIVABLES
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMY
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Multiple Choice Questions
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Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
8-2
Brief Exercises
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Short Answer Essay
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*This topic is dealt with in an Appendix to the chapter.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Learning Objective 1
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TF
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MC
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MC
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258
MA
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210
BE
3
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63
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211
BE
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56
MC
60
MC
64
MC
244
CS
Learning Objective 2
8
TF
68
MC
212
BE
224
Ex
228
Ex
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MC
213
BE
225
Ex
245
CS
66
MC
70
MC
214
BE
226
Ex
258
MA
67
MC
71
MC
217
BE
227
Ex
Learning Objective 3
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10.
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TF
90
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112
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133
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234
Ex
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MC
113
MC
134
MC
246
CS
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MC
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114
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135
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247
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136
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96
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117
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250
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97
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118
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139
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251
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98
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119
MC
140
MC
258
MA
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99
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120
MC
214
BE
260
SA
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79
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100
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121
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215
BE
268
SA
21
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80
MC
101
MC
122
MC
216
BE
269
SA
22
TF
81
MC
102
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123
MC
217
BE
Reporting and Analyzing Receivables
FOR INSTRUCTOR USE ONLY
8-3
23
TF
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226
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231
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89
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110
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131
MC
232
Ex
Learning Objective 4
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34
TF
141
MC
152
MC
219
BE
259
SA
35
TF
143
MC
153
MC
220
BE
261
SA
36
TF
144
MC
154
MC
235
Ex
37
TF
145
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155
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236
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38
TF
146
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156
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237
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147
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157
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238
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148
MC
158
MC
239
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TF
149
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159
MC
240
Ex
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TF
150
MC
160
MC
252
CS
142
MC
151
MC
218
BE
258
MA
Learning Objective 5
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43
TF
163
MC
168
MC
218
BE
238
Ex
258
MA
44
TF
164
MC
169
MC
220
BE
239
Ex
262
SA
45
TF
165
MC
170
MC
228
Ex
240
Ex
161
MC
166
MC
171
MC
236
Ex
253
CS
162
MC
167
MC
172
MC
237
Ex
254
CS
Learning Objective 6
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46
TF
47
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173
MC
258
MA
Learning Objective 7
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48
TF
50
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175
MC
255
CS
263
SA
49
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174
MC
241
Ex
258
MA
264
SA
Learning Objective 8
Item
Type
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Type
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51
TF
178
MC
182
MC
186
MC
190
MC
242
Ex
52
TF
179
MC
183
MC
187
MC
191
MC
256
CS
176
MC
180
MC
184
MC
188
MC
222
BE
258
MA
177
MC
181
MC
185
MC
189
MC
241
Ex
265
SA
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
8-4
Learning Objective 9
Item
Type
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53
TF
194
MC
199
MC
204
MC
209
MC
266
SA
54
TF
195
MC
200
MC
205
MC
223
BE
267
SA
55
TF
196
MC
201
MC
206
MC
243
Ex
192
MC
197
MC
202
MC
207
MC
257
CS
193
MC
198
MC
203
MC
208
MC
258
MA
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
Ma = Matching SA = Short Answer Essay
CHAPTER LEARNING OBJECTIVES
1. Identify the different types of receivables. Receivables are frequently classified as
accounts, notes, and other. Accounts receivable are amounts customers owe on account.
Notes receivable represent claims that are evidenced by formal instruments of credit. Other
receivables include nontrade receivables such as interest receivable, loans to company
officers, advances to employees, and income taxes refundable.
2. Explain how accounts receivable are recognized in the accounts. Companies record
accounts receivable when they provide a service on account or at the point–of-sale of
merchandise on account. Sales revenues are reduced by sales returns and allowances. Cash
discounts reduce the amount received on accounts receivable.
3. Describe the methods used to account for bad debts. The two methods of accounting for
uncollectible accounts are the allowance method and the direct write-off method. Under the
allowance method, companies estimate uncollectible accounts as a percentage of
receivables. It emphasizes the cash realizable value of the accounts receivable. An aging
schedule is frequently used with this approach.
4. Compute the interest on notes receivable. The formula for computing interest is: Face
value Interest rate Time.
5. Describe the entries to record the disposition of notes receivable. Notes can be held to
maturity, at which time the borrower (maker) pays the face value plus accrued interest and
the payee removes the note from the accounts. In many cases, however, similar to accounts
receivable, the holder of the note speeds up the conversion by selling the receivable to
another party. In some situations, the maker of the note dishonors the note (defaults), and the
note is written off.
6. Explain the statement presentation of receivables. Companies should identify each major
type of receivable in the balance sheet or in the notes to the financial statements. Short-term
receivables are considered current assets. Companies report the gross amount of receivables
and allowance for doubtful accounts. They report bad debt and service charge expenses in
the income statement as operating (selling) expenses, and interest revenue as other
revenues and gains in the nonoperating section of the statement.
Reporting and Analyzing Receivables
8-5
7. Describe the principles of sound accounts receivable management. To properly manage
receivables, management must (a) determine to whom to extend credit, (b) establish a
payment period, (c) monitor collections, (d) evaluate the liquidity of receivables, and (e)
accelerate cash receipts from receivables when necessary.
8. Identify ratio to analyze a company’s receivables. The accounts receivable turnover and
the average collection period both are useful in analyzing management’s effectiveness in
managing receivables. The accounts receivable aging schedule also provides useful
information.
9. Describe methods to accelerate the receipt of cash from receivables. If the company
needs additional cash, management can accelerate the collection of cash from receivables by
selling (factoring) its receivables or by allowing customers to pay with bank credit cards.
TRUE-FALSE STATEMENTS
1. Trade receivables occur when two companies trade or exchange notes receivables.
2. Trade receivables can be an account receivable or a note receivable.
3. Other receivables include non–trade receivables such as loans to company officers.
4. Advances to employees are referred to as accounts receivable.
5. Both accounts receivable and notes receivable represent claims that are expected to be
collected in cash.
6. Accounts receivable are one of a company’s least liquid assets.
7. Accounts receivable are the result of cash and credit sales.
8. The two accounting problems with accounts receivable are: (1) recognizing and (2)
disposing.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
8-6
9. Receivables are valued and reported in the balance sheet at their gross amount less any
sales returns and allowances and less any cash discounts.
10. An aging of accounts receivable schedule is based on the premise that the longer the
period an account remains unpaid, the greater the probability that it will eventually be
collected.
11. The allowance method of accounting for bad debts violates the matching principle.
FSA
12. When using the allowance method bad debt expense is recorded when an individual
customer defaults.
13. Uncollectible accounts must be estimated because it is not possible to know which
accounts will not be collected.
14. If a company uses the allowance method to account for uncollectible accounts, the entry
to write off an uncollectible account only involves balance sheet accounts.
15. The percentage of receivables basis of estimating uncollectible accounts ignores the
existing balance in the allowance account when the bad debt adjusting entry is recorded.
16. Under the accounts receivable aging method, the balance in Allowance for Doubtful
Accounts must be considered carefully prior to adjusting for estimated uncollectible
accounts.
17. Under the direct write-off method, no attempt is made to match bad debt expense to sales
revenues in the same accounting period.
18. Allowance for Doubtful Accounts is debited under the direct write–off method when an
account is determined to be uncollectible.
Reporting and Analyzing Receivables
8-7
19. When the allowance method is used, the write-off of an account receivable results in an
expense at the time of write–off.
20. Allowance for Doubtful Accounts is a contra account that is deducted from Accounts
Receivable on the balance sheet.
21. The Allowance for Doubtful Accounts is a liability account.
22. Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from
Net Sales.
23. If bad debt losses are significant, the direct write-off method is acceptable for financial
reporting purposes.
24. Bad debt losses are a cost of selling on credit.
25. The allowance method of handling bad debts violates the matching principle.
26. The allowance for doubtful accounts is similar to accumulated depreciation in that it shows
the total of all accounts written off over the years.
27. The direct write-off method of recognizing uncollectible accounts is not in accordance with
good accounting practice.
28. When using the direct write-off method year-end adjustments for bad debt expense must
be made.
29. When using the allowance method year-end adjustments for bad debt expense must be
made.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
8-8
30. Under the allowance method, Bad Debt Expense is debited when an account is deemed
uncollectible and must be written off.
31. Under the allowance method, the cash realizable value of receivables is the same both
before and after an account has been written off.
32. An aging schedule is prepared only for old accounts receivables that have been past due
for more than one year.
33. When an account receivable that was previously written off is collected, it is first
necessary to reverse the entry to reinstate the customer’s account before recording the
collection.
34. A note receivable is a written promise by the maker to the payee to pay a specified
amount of money at a definite time.
35. The two key parties to a note are the maker and the payee.
36. In a promissory note, the party to whom payment is to be made is called the maker.
37. In computing the maturity date of a note, the date the note is issued is included but the
due date is omitted.
38. When the due date of a note is stated in months, the time factor in computing interest is
the number of months divided by 360 days.
39. There is only one way to calculate interest correctly.
40. Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000
0.10 6/12.
Reporting and Analyzing Receivables
8-9
41. The basic formula for computing interest on an interest-bearing note is face value of note
x annual interest rate x time in terms of one year = interest.
42. When a note is written to settle an open account no entry is necessary.
43. A dishonored note is a note that is not paid in full at maturity.
44. If a promissory note is dishonored, the payee should not record interest income.
45. The holder of a note adjusts for accrued interest by debiting Interest Receivable and
crediting Interest Revenue.
46. Both the gross amount of receivables and the allowance for doubtful accounts should be
reported in the balance sheet.
47. Bad debt expense and interest revenue are reported in the income statement under other
revenues and expenses.
48. If a company has a significant concentration of credit risk, it is not required to discuss that
in its notes to its financial statements as that could increase the related risk.
49. A concentration of credit risk is a threat of nonpayment from a single customer or class of
customers that could adversely affect the financial health of the company.
50. If a company has significant concentrations of credit risk, it must discuss this risk in the
notes to its financial statements.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
8-10
51. The accounts receivable turnover ratio is computed by dividing total sales by the average
net receivables during the year.
52. The average collection period is frequently used to assess the effectiveness of a
company’s credit and collection policies.
53. A factor buys receivables from businesses for a fee and collects the payment directly from
customers.
54. A major advantage of national credit cards to retailers is that there is no charge to the
retailer by the credit card companies for their services.
55. If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed
records of customer accounts.
Answers to True-False Statements
MULTIPLE CHOICE QUESTIONS
56. Interest is usually associated with
a. accounts receivable.
b. notes receivable.
c. doubtful accounts.
d. bad debts.
Reporting and Analyzing Receivables
8-11
57. The receivable that is usually evidenced by a formal instrument of credit is a(n)
a. trade receivable.
b. note receivable.
c. accounts receivable.
d. income tax receivable.
58. Which of the following receivables would not be classified as an “other receivable”?
a. Advance to an employee
b. Refundable income tax
c. Notes receivable
d. Interest receivable
59. Notes or accounts receivables that result from sales transactions are often called
a. sales receivables.
b. non–trade receivables.
c. trade receivables.
d. merchandise receivables.
60. The term “receivables” refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
61. Receivables are
a. one of the most liquid assets and thus are always considered current assets.
b. claims that are expected to be collected in cash.
c. shown on the income statement at cash realizable value.
d. always the result of revenue recognition.
62. Non-trade receivables should be reported separately from trade receivables. Why is this
statement either true or false?
a. It is true because trade receivables are current assets and non-trade receivables are
long term.
b. It is false because all current receivables must be grouped together in one account.
c. It is true because non-trade receivables do not result from business operations and
should not be included with accounts receivable.
d. It is false because management can decide how to report receivables.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
8-12
63. M. Cornett is a corporation that sells breakfast cereal. Based on the accounts listed below,
what are M. Cornett’s total trade receivables?
Income tax refund due $ 500
Advance due to the company from
the company president 300
3-month note due from M. Cornett’s main customer 2,000
Interest due this month on the above note 100
Due and unpaid from this month’s sales 7,000
Due and unpaid from last month’s sales 1,000
a. $8,000
b. $10,000
c. $9,000
d. $10,900
64. Which of the following would probably be the most significant type of a claim held by a
company?
a. notes receivable
b. non–trade receivables
c. accounts receivable
d. interest receivable
65. Dorman Company had the following items to report on its balance sheet:
Employee advances
$ 1,580
Amounts owed by customers for the sale of services (due in 30 days)
3,050
Refundable income taxes
1,120
Interest receivable
950
Accepted a formal instrument of credit for services (due in 18 months)
2,220
A loan to company president
8,000
Dishonored a note for principal and interest which will eventually be collected
1,380
Based on this information, what amount should appear in the “Other Receivables”
category?
a. $18,300
b. $11,650
c. $13,030
d. $15,250
Reporting and Analyzing Receivables
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66. On January 15, Nifty Company sells merchandise on account to Martinez Associates for
$3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to
Nifty. On January 24, payment is received from Martinez for the balance due. What is the
amount of cash received?
a. $2,400
b. $2,328
c. $2,310
d. $1,680
67. Wilton sells softball equipment. On November 14, they shipped $3,000 worth of softball
uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an
order from Douglas High School for $1,800 worth of custom printed bats to be produced in
December. On November 30, Paola Middle School returned $300 of defective
merchandise. Wilton has received no payments from either school as of month end. What
amount will be recognized as net accounts receivable on the balance sheet as of
November 30?
a. $4,800
b. $4,500
c. $3,000
d. $2,700
68. Which one of the following is not an accounting problem (issue) associated with accounts
receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Accelerating cash receipts from accounts receivable
69. Accounts receivable are valued and reported on the balance sheet
a. in the investments section.
b. at gross amounts less sales returns and allowances.
c. at cash realizable value.
d. only if they are not past due.
70. Three accounting issues associated with accounts receivable are
a. depreciating, returns, and valuing.
b. depreciating, valuing, and collecting.
c. recognizing, valuing, and accelerating collections.
d. accrual, bad debts, and accelerating collections.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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71. Carson Company on July 15 sells merchandise on account to Tayler Co. for $2,000, terms
2/10, n/30. On July 20 Tayler Co. returns merchandise worth $800 to Carson Company.
On July 24 payment is received from Tayler Co. for the balance due. What is the amount
of cash received?
a. $1,200
b. $1,176
c. $1,160
d. $2,000
72. The Allowance for Doubtful Accounts is necessary because
a. when recording uncollectible accounts expense, it is not possible to know which
specific accounts will not pay.
b. uncollectible accounts that are written off must be accumulated in a separate account.
c. a liability results when a credit sale is made.
d. management needs to accumulate all the credit losses over the years.
73. The account Allowance for Doubtful Accounts is classified as a(n)
a. liability.
b. contra account of Bad Debt Expense.
c. expense.
d. contra account to Accounts Receivable.
74. Under the allowance method, Bad Debt Expense is recorded
a. when an individual account is written off.
b. when the loss amount is known.
c. for an amount that the company estimates it will not collect.
d. several times during the accounting period.
75. The expense recognition
a. requires that all credit losses be recorded when an individual customer cannot pay.
b. necessitates the recording of an estimated amount for bad debts.
c. results in the recording of a known amount for bad debt losses.
d. is not involved in the decision of when to expense a credit loss.
76. Under the allowance method, writing off an uncollectible account
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
Reporting and Analyzing Receivables
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77. The net amount expected to be received in cash from receivables is termed the
a. cash realizable value.
b. cash-good value.
c. gross cash value.
d. cash-equivalent value.
78. If a company fails to record estimated bad debts expense,
a. cash realizable value is understated.
b. expenses are understated.
c. revenues are understated.
d. receivables are understated.
79. If the amount of uncollectible account expense is understated at year end
a. net income will be understated.
b. stockholders’ equity will be understated.
c. Allowance for Doubtful accounts will be overstated.
d. net Accounts Receivable will be overstated.
80. If the amount of uncollectible account expense is overstated at year end
a. net income will be overstated.
b. stockholders’ equity will be overstated.
c. Allowance for Doubtful accounts will be understated.
d. net Accounts Receivable will be understated.
81. The expense recognition principle relates to credit losses by stating that bad debt expense
should be recorded
a. in the same period as allowed for tax purposes.
b. in the period of the sale.
c. for an exact amount.
d. in the period of the loss.
82. When the allowance method is used to account for uncollectible accounts, Bad Debts
Expense is debited when
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer’s account becomes past due.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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83. When an account becomes uncollectible and must be written off
a. Allowance for Doubtful Accounts should be credited.
b. Accounts Receivable should be credited.
c. Bad Debt Expense should be credited.
d. Sales Revenue should be debited.
84. The collection of an account that had been previously written off under the allowance
method of accounting for uncollectibles
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written off.
d. does not affect income in the period it is collected.
85. The direct write-off method of accounting for uncollectible accounts
a. emphasizes the matching of expenses with revenues.
b. emphasizes balance sheet relationships.
c. emphasizes cash realizable value.
d. is not generally accepted as a basis for estimating bad debts.
86. An aging of a company’s accounts receivable indicates that $4,500 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $3,300.
c. debit to Bad Debt Expense for $3,300.
d. credit to Allowance for Doubtful Accounts for $4,500.
87. An aging of a company’s accounts receivable indicates that $4,500 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $4,500.
b. debit to Bad Debt Expense for $6,100.
c. debit to Bad Debt Expense for $2,900.
d. credit to Allowance for Doubtful Accounts for $4,500.
Reporting and Analyzing Receivables
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88. An aging of a company’s accounts receivable indicates that $4,500 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,600 credit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $2,900.
c. debit to Bad Debt Expense for $2,900.
d. credit to Allowance for Doubtful Accounts for $4,500.
89. An aging of a company’s accounts receivable indicates that $4,500 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $4,500.
b. debit to Allowance for Doubtful Accounts for $5,700.
c. debit to Bad Debt Expense for $5,700.
d. credit to Allowance for Doubtful Accounts for $4,500.
90. 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 exceeded previous provisions for bad
debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of receivables method of estimating bad debts is used.
91. Under the direct write-off method of accounting for uncollectible accounts, Bad Debt
Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
92. An alternative name for Bad Debt Expense is
a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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93. Bad Debt Expense is considered
a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.
94. Two methods of accounting for uncollectible accounts are the
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
95. The allowance method of accounting for uncollectible accounts is required if
a. the company makes any credit sales.
b. bad debts are significant in amount.
c. the company is a retailer.
d. the company charges interest on accounts receivable.
96. Bad Debt Expense is reported on the income statement as
a. part of cost of goods sold.
b. an expense subtracted from net sales to determine gross profit.
c. an operating expense.
d. a contra revenue account.
97. When the allowance method of accounting for uncollectible accounts is used, Bad Debt
Expense is recorded
a. in the year after the credit sale is made.
b. in the same year as the credit sale.
c. as each credit sale is made.
d. when an account is written off as uncollectible.
98. To record estimated uncollectible accounts using the allowance method, the adjusting
entry would be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debt Expense 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.
Reporting and Analyzing Receivables
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99. Under the allowance method of accounting for uncollectible accounts,
a. the cash realizable value of accounts receivable is greater before an account is written
off than after it is written off.
b. Bad Debt Expense is debited when a specific account is written off as uncollectible.
c. the cash realizable value of accounts receivable in the balance sheet is the same
before and after an account is written off.
d. Allowance for Doubtful Accounts is closed each year to Income Summary.
100. When using the balance sheet approach, the balance in Allowance for Doubtful Accounts
must be considered prior to the end of period adjustment when using which of the
following methods?
a. Net realizable method
b. Direct write-off method
c. Accrual method
d. Allowance method
101. Allowance for Doubtful Accounts on the balance sheet
a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading “Other Assets.”
d. is deducted from accounts receivable.
102. When an account is written off using the allowance method, the
a. cash realizable value of total accounts receivable will increase.
b. net accounts receivable will decrease.
c. allowance account will increase.
d. net accounts receivable will stay the same.
103. If an account is collected after having been previously written off
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
104. 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 Allowance for Doubtful Accounts and credit Bad Debt Expense.
b. debit Allowance for Doubtful Accounts and credit Accounts Receivable.
c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
d. debit Bad Debt Expense and credit Accounts Receivable.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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105. When an account is written off using the allowance method, accounts receivable
a. is unchanged and the allowance account increases.
b. increases and the allowance account increases.
c. decreases and the allowance account decreases.
d. decreases and the allowance account increases.
106. Under the allowance method, when a specific account is written off
a. total assets will be unchanged.
b. net income will decrease.
c. total assets will decrease.
d. total assets will increase.
107. The percentage of receivables basis for estimating uncollectible accounts emphasizes
a. cash realizable value.
b. the relationship between accounts receivable and bad debts expense.
c. income statement relationships.
d. the relationship between sales and accounts receivable.
108. Nichols Company uses the percentage of receivables method for recording bad debts
expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000.
Management estimates that 4% of accounts receivable will be uncollectible. What
adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a
credit balance of $2,000 before adjustment?
a. Bad Debt Expense 8,000
Allowance for Doubtful Accounts 8,000
b. Bad Debt Expense 6,000
Allowance for Doubtful Accounts 6,000
c. Bad Debt Expense 6,000
Accounts Receivable 6,000
d. Bad Debt Expense 8,000
Accounts Receivable 8,000
109. Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts
is $11,000 debit before adjustment what is the balance after adjustment?
a. $45,000
b. $11,000
c. $56,000
d. $34,000