Deck 8: Reporting and Analyzing Receivables

Question 1

Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the statement of financial position.

Answer 1

True

Question 2

The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debts adjusting entry is recorded.

Answer 2

False

Question 3

Allowance for Doubtful Accounts is credited when an account is determined to be uncollectible.

Answer 3

False

Question 4

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 5

Accounts receivable can be the result of either cash or credit sales.

Question 6

Advances to employees are a type of accounts receivable.

Question 7

Interest revenue is never earned on accounts receivable.

Question 8

Atlas Inc. borrowed money from a bank and is therefore regarded as the payee.

Question 9

The Allowance for Doubtful Accounts is a liability account and has a normal credit balance.

Question 10

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Question 11

Receivables are considered to be financial assets.

Question 12

The carrying amount of Accounts Receivable is determined by adding the Allowance for Doubtful Accounts to Accounts Receivable.

Question 13

Other receivables include nontrade receivables such as loans to company officers.

Question 14

Bad Debts Expense is a contra account to the Sales account.

Question 15

It is possible for the allowance account to have a debit balance before the year-end adjusting entry is recorded.

Question 16

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.

Question 17

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 18

The two key parties to a note are the maker and the payee.

Question 19

Under the aging method of estimating the allowance for doubtful accounts, the balance in the allowance account must be considered prior to adjusting for estimated uncollectible accounts.

Question 20

When posting is up-to-date, the balance in the accounts receivable subsidiary ledger must equal the balance in the general ledger.

Question 21

Under the allowance method for uncollectible accounts,

A) bad debts expense is not recorded until a customer defaults.
B) the entry to write off an uncollectible account only involves statement of financial position accounts.
C) allowance for doubtful accounts increases, while accounts receivables decrease when writing off an uncollectible account.
D) bad debt expense increases, while allowance for doubtful accounts decreases when writing off an uncollectible account.

Question 22

Under the allowance method for uncollectible accounts, writing off an uncollectible account

A) affects only statement of financial position accounts.
B) affects both statement of financial position and income statement accounts.
C) affects only income statement accounts.
D) affects either statement of financial position or income statement accounts.

Question 23

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 uncollectible and is written off.
C) management estimates the amount of uncollectible accounts.
D) a customer's account becomes past due.

Question 24

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

Question 25

Notes or accounts receivables that result from sales transactions are often called

A) sales receivables.
B) nontrade receivables.
C) trade receivables.
D) merchandise receivables.

Question 26

The account Allowance for Doubtful Accounts is classified as a(n)

A) liability.
B) contra account to Bad Debts Expense.
C) expense.
D) contra account to Accounts Receivable.

Question 27

Under the allowance method for uncollectible accounts, Bad Debts Expense is recorded

A) when an individual account is written off.
B) when the amount of loss is known.
C) for an amount that the company estimates it will not collect.
D) several times during the accounting period.

Question 28

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 Debts Expense should be credited.
D) Sales should be debited.

Question 29

Accounts receivable are valued and reported on the statement of financial position

A) in the non-current asset section.
B) at the gross amount less sales returns and allowances.
C) at carrying amount.
D) only if they are not past due.

Question 30

If the amount of bad debts expense is understated at year end, then

A) net income will be understated.
B) shareholders' equity will be understated.
C) Allowance for Doubtful Accounts will be overstated.
D) net Accounts Receivable will be overstated.

Question 31

The receivable that is usually evidenced by a formal instrument of credit is a(n)

A) trade receivable.
B) note receivable.
C) account receivable.
D) income tax receivable.

Question 32

A receivable is recognized

A) when the sales effort is substantially complete.
B) regardless of collection risk.
C) only when payment has been received.
D) when a service is performed.

Question 33

Trade receivables

A) occur when two companies trade or exchange notes receivables.
B) can be accounts receivable or notes receivable.
C) include employee advances.
D) do not result from the operations of the business.

Question 34

If a company fails to record estimated bad debts expense, then

A) the carrying amount is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

Question 35

The account Allowance for Doubtful Accounts is necessary because

A) when recording bad debts expense, it is not possible to know which specific accounts will not be paid.
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.

Question 36

To find the balance due from an individual customer, the accountant would refer to the

A) General Journal.
B) Sales account in the general ledger.
C) Accounts Receivable subsidiary ledger.
D) Accounts Receivable account in the general ledger.

Question 37

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.

Question 38

Which of the following statements is false?

A) A subsidiary ledger is a group of accounts that provides details about a control account in the general ledger.
B) When a subsidiary ledger and a control account are used, each journal entry that affects accounts receivable must be posted twice.
C) The balance in the control account must always equal the total of the subsidiary ledger.
D) A subsidiary ledger includes supporting detail to the general ledger.

Question 39

The net amount expected to be received in cash from receivables is termed the

A) carrying amount.
B) fair value.
C) gross cash value.
D) cash-equivalent value.

Question 40

Under the allowance method for uncollectible accounts,

A) the recovery of an account receivable previously written off results in a credit to the Bad Debt Expense account.
B) Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.
C) the carrying value of receivables is the same both before and after an account has been written off.
D) the carrying amount of receivables is the same both before and after an account that had previously been written off is recovered.

Question 41

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a debit to

A) Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B) Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
C) Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D) Bad Debts Expense and a credit to Accounts Receivable.

Question 42

Writing off an uncollectible account involves

A) a debit to Bad Debts Expense.
B) a debit to Allowance for Doubtful Accounts.
C) a debit to Sales Returns and Allowances.
D) a debit to Accounts Receivable.

Question 43

Under the allowance method for uncollectible accounts, Bad Debts 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.

Question 44

The balance in Allowance for Doubtful Accounts would have a debit balance when

A) the percentage of receivables basis is used.
B) an uncollectible account is later recovered.
C) write offs during the year have been less than previous provisions.
D) write offs during the year have exceeded previous provisions.

Question 45

Bad Debts 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.

Question 46

When an account is written off using the allowance method for uncollectible accounts, the

A) carrying amount 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.

Question 47

The collection of an account that had been previously written off under the allowance method for uncollectible accounts

A) increases net income in the period of collection.
B) involves a credit to Bad Debts Expense.
C) will usually require two journal entries.
D) is recorded by debiting Cash and crediting Bad Debts Expense.

Question 48

An aging of a company's accounts receivable indicates that $4,200 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record bad debts for the period will require a

A) debit to Bad Debts Expense for $4,200.
B) debit to Allowance for Doubtful Accounts for $3,400.
C) debit to Bad Debts Expense for $3,400.
D) credit to Allowance for Doubtful Accounts for $5,000.

Question 49

An inexperienced accountant made the following entries. In each case, the explanation to the entry is correct. InstructionsPrepare the correcting entries.

Question 50

The Allowance for Doubtful Accounts is shown under

A) Expenses on the income statement.
B) Revenue on the income statement.
C) Current Liabilities on the statement of financial position.
D) Current Assets on the statement of financial position.

Question 51

Broadway Limited had an $800 credit balance in Allowance for Doubtful Accounts at December 31, 2018, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following: Instructions
a. Prepare the adjusting entry at December 31, 2018, to recognize bad debts expense.
b. Assume the same facts as above except that the Allowance for Doubtful Accounts account had an $800 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's bad debts.

Question 52

Allowance for Doubtful Accounts on the statement of financial position

A) is included in current liabilities.
B) increases the carrying amount of accounts receivable.
C) appears under the heading "Other Assets."
D) is deducted from accounts receivable.

Question 53

Bad Debts Expense is reported on the income statement as

A) part of cost of goods sold.
B) an expense subtracted from gross sales to determine net sales.
C) an operating expense.
D) a non-operating expense.

Question 54

Under the allowance method of accounting for uncollectible accounts, Bad Debts 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.

Question 55

previously written off accounts of $4,000 were collected (in addition to the "regular" collections).Instructions
a. Record the 2018 transactions.
b. If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 5% of accounts receivable, prepare the adjusting entry for bad debts expense at December 31, 2018.

Question 56

Prepare journal entries to record the following transactions entered into by Bluenote Corporation:

Question 57

The collection of an account that had been previously written off under the allowance method for uncollectible accounts

A) will increase net income in the period it is collected.
B) will decrease net 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 net income in the period it is collected.

Question 58

Under the allowance method for uncollectible accounts

A) the carrying amount of accounts receivable is greater before an account is written off than after it is written off.
B) Bad Debts Expense is debited when a specific account is written off as uncollectible.
C) the carrying amount of accounts receivable in the statement of financial position is the same before and after an account is written off.
D) Allowance for Doubtful Accounts is closed each year to Income Summary.

Question 59

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 are higher than 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.

Question 60

Estimated uncollectibles are recorded as a debit to

A) Allowance for Doubtful Accounts.
B) Bad Debts Expense.
C) Sales.
D) Accounts Receivable.

Question 61

Calculate the maturity value associated with each of the following notes receivable, assuming interest is due at maturity. (Round your answers to the nearest cent.)
a. A $10,000, 7%, 3-month note dated April 20.
b. A $5,000, 5.5%, 4-month note dated March 5.
c. An $8,000, 3%, 1-month note dated September 10.

Question 62

Brinkley Corporation uses the perpetual inventory system and the allowance method for estimating uncollectible accounts.InstructionsPrepare entries to record the following transactions for a company that uses the perpetual inventory method:Jan 5 Sold merchandise to Amy Ward for $1,500, terms n/15. The merchandise cost $900.Apr 15 Received partial payment of $500 from Amy Ward.Aug 21 Wrote off as uncollectible the balance of the Amy Ward account when she declared bankruptcy.Oct 5 Received a cheque for $350 from Amy Ward. No further collections are expected.

Question 63

The general ledger of Grangehill Corporation at December 31, 2018 shows the following balances, all of which are normal: Management estimates the carrying amount of accounts receivable should be $158,000.Instructions
a. Prepare the adjusting entry for bad debts for 2018.
b. Show how the current assets would be presented on the statement of financial position at December 31, 2018.

Question 64

Calculate the missing amount for each of the following notes:

Question 65

The following data are presented for Ratalan Ltd. for 2018: InstructionsCalculate the receivables turnover and the average collection period for accounts receivable in days.

Question 66

Alvira Inc. often requires customers to sign notes for major credit purchases. Record the following transactions for Alvira:Feb 12 Accepted a $42,000, 4%, 2-month note from John Doe for a 19-foot motorboat built to his specifications. Interest is due at maturity. The company uses the periodic inventory method.Apr 14 Received notification from John Doe that he was unable to honour his note but that he expects to pay the amount owed next month.May 26 Received a cheque from John Doe for the total amount owed.Jun 1 Received notification by the bank that John Doe's cheque was being returned "NSF" and that Mr. Doe had declared personal bankruptcy.

Question 67

For their fiscal year ended December 31, 2017, the Texas Tech Store had credit sales of $750,000. At year end, the unadjusted trial balance shows a debit balance of $1,800 in the Allowance for Doubtful Accounts, and $140,000 in Accounts Receivable. The credit manager prepared an aging schedule of accounts receivable and estimates that $5,200 will prove to be uncollectible.On March 4, 2018 the credit manager authorizes a write off of the $2,000 balance owed by Crystal Rivers.Instructions
a. Prepare the adjusting entry to record the estimated bad debts expense for 2017.
b. Show the statement of financial position presentation of accounts receivable at December 31, 2017.
c. On March 4, 2018, before the write off, assume the balance of Accounts Receivable account is $175,000 and the balance of Allowance for Doubtful Accounts is a credit of $5,500. Record the entry to write off the Rivers account. Also, show the statement of financial position presentation of accounts receivable before and after the write off.

Question 68

Complete the following table, indicating whether the transaction would: I - improve, W - worsen or NE - have no effect on the items noted.

Question 69

Copeland Industries has the following transactions related to notes receivable during the last month of the year:Dec 1 Lent $75,000 cash to P. Arthur on a 1-year, 6% note. Interest is due the first of each month, commencing January 1.15 Sold goods to F. Murdoch, receiving a $12,000, 4-month, 4% note. Interest is due the 15 of each month, commencing January 15. Copeland uses the periodic inventory method.31 Accrued interest revenue on notes receivable.InstructionsRecord the above transactions for Greenland Distributors.

Question 70

Record the following transactions for Lucea Corporation:Jul 1 Received an $8,000, 3%, 3-month note, dated July 1, from Frank Baker in payment of his open account. Interest is due at maturity.Oct 1 Received notification from Frank Baker that he is unable to honour his note at this time. It is expected that Baker will pay at a later date.Nov 15 Received full payment from Frank Baker for note receivable previously dishonoured.