Question 1

Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $14,000. If the balance of the Allowance for Doubtful Accounts is $2,000 debit before adjustment, what is the amount of bad debt expense?

Accepted Answer

The bad debt expense is calculated by adjusting the Allowance for Doubtful Accounts to the estimated uncollectible amount. Since the allowance has a $2,000 debit balance, you need to add $16,000 to reach the $14,000 credit balance, resulting in a $16,000 bad debt expense.

Question 2

An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 debit balance, the adjustment to record bad debts for the period will require a

Accepted Answer

The adjustment needed is to bring the Allowance for Doubtful Accounts to the estimated uncollectible amount of $3,000. Since there is already a $800 debit balance, you need to add $3,800 to reach the desired credit balance of $3,000.

Question 3

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts

Accepted Answer

The balance of Allowance for Doubtful Accounts is relevant when using the percentage of receivables basis, as it is used to calculate the estimated uncollectible accounts. It is not relevant when using the direct write-off basis, as that method does not utilize an allowance account. The balance can show a debit balance if more accounts are estimated to be uncollectible than the existing allowance balance.

Question 4

In 2018, Warehouse 13 had net credit sales of $750,000. On January 1, 2018, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2018, $29,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $150,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018?

Accepted Answer

To find the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018, we need to follow these steps:

1. Calculate the current balance in the allowance account.

The allowance account had a credit balance of $16,000 at January 1, 2018. During 2018, $29,000 of uncollectible accounts were written off, so the balance at December 31, 2018 would be:

$16,000 - $29,000 = -$13,000

Since the balance is negative, it means that there is not enough allowance to cover the expected uncollectible accounts.

2. Calculate the required balance in the allowance account.

The past experience indicates that the allowance should be 10% of the balance in receivables, which is $150,000 at December 31, 2018.

10% x $150,000 = $15,000

This means that there should be at least $15,000 in the allowance account at December 31, 2018.

3. Calculate the required adjustment to the allowance account.

To bring the allowance balance up to the required level, we need to increase it by:

$15,000 - (-$13,000) = $28,000

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 is $28,000.

The correct answer is C.

Question 5

Using the following information:  During 2018, sales on account were $145,000 and collections on account were $100,000. Also during 2018, the company wrote off $4,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $40,000. Bad debt expense for 2018 is

Accepted Answer

The bad debt expense is the amount of the estimated uncollectible accounts that should be recognized in the current period.

To calculate bad debt expense, we need to take into account the following:

1. Sales on account = $145,000
2. Collections on account = $100,000
3. Write-offs of uncollectible accounts = $4,000
4. Estimate of uncollectible accounts at year end = $40,000

Using the percentage of sales method, we can estimate bad debt expense as follows:

Estimated uncollectible accounts = Percentage of sales x Sales on account
= 2% x $145,000
= $2,900

To this amount, we need to add the write-offs, which are already known, to get the total bad debt expense for the year:

Bad debt expense = Estimated uncollectible accounts + Write-offs
= $2,900 + $4,000
= $6,900

However, we also need to adjust this amount for the estimate of uncollectible accounts at year end, which is $40,000:

Adjusted bad debt expense = Bad debt expense - Estimate of uncollectible accounts at year end
= $6,900 - $40,000
= -$33,100

Since a negative amount does not make sense for an expense, we need to reverse the sign and take the absolute value:

Final bad debt expense = |- $33,100|
= $33,100

Therefore, the answer is choice C ($9,000), the closest option to our final calculation.

Question 6

The percentage of receivables basis for estimating uncollectible accounts emphasizes

Accepted Answer

The percentage of receivables basis for estimating uncollectible accounts focuses on the cash realizable value of accounts receivable, which is the amount of receivables that is expected to be collected in cash. This approach estimates the amount that is not expected to be collected and deducts it from the total receivables to arrive at the cash realizable value.

Question 7

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

Accepted Answer

When an account is written off using the allowance method, the accounts receivable balance is unchanged because the specific receivable being written off is removed from accounts receivable and the allowance for doubtful accounts simultaneously, resulting in a decrease in both accounts receivable and the allowance account.

Question 8

Haven Company uses the percentage of receivables method for recording bad debt expense. The accounts receivable balance is $600,000 and credit sales are $2,700,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Haven Company make to record bad debt expense if the Allowance for Doubtful Accounts has a $5,000 credit balance before adjustment?

Accepted Answer

The answer of Haven Company uses the percentage of receivables...

Question 9

Using the following information:  During 2018, sales on account were $145,000 and collections on account were $100,000. Also during 2018, the company wrote off $4,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $40,000. The change in the cash realizable value from the balance at 12/31/17 to 12/31/18 was a

Accepted Answer

The answer of Using the following information:  During 2018,...

Question 10

The preferred method of accounting for uncollectible accounts is the:

Accepted Answer

The allowance method is the preferred method for accounting for uncollectible accounts as it provides a more accurate representation of accounts receivable on the balance sheet. The actual method is not commonly used as it requires extensive record-keeping and is not practical for most businesses. The direct write-off method only recognizes bad debt expense when an account is determined to be uncollectible, which can result in significant fluctuations in the financial statements. The net realizable method is not a method of accounting for uncollectible accounts, but rather a way to report accounts receivable on the balance sheet.

Question 11

Under the direct write-off method of accounting for uncollectible accounts

Accepted Answer

Under the direct write-off method, a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. This method does not emphasize balance sheet relationships and bad debt expense is only recorded in the period in which the revenue was recorded. Therefore, option A and D are incorrect.

Question 12

In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-off of a $1,500 account. What is the cash realizable value after the write-off?

Accepted Answer

The cash realizable value remains the same at $16,000 after the write-off because the write-off does not affect the net realizable value of accounts receivable. The allowance for doubtful accounts already accounted for potential uncollectible amounts.

Question 13

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $15,000. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before adjustment, what is the amount of bad debt expense for that period?

Accepted Answer

The amount of bad debt expense is calculated by subtracting the balance in the allowance account from the estimated uncollectible accounts. In this case, $15,000 - $2,000 = $13,000, which is the amount of bad debt expense for the period.

Question 14

In 2018, Chandler Company had net credit sales of $1,125,000. On January 1, 2018, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2018, $42,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $380,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018?

Accepted Answer

First, we need to calculate the desired balance for the Allowance for Doubtful Accounts using the percentage of receivables basis:

Desired balance = 10% x $380,000 = $38,000

Next, we need to adjust the current balance to the desired balance:

Current balance = $27,000 (given)

Adjustment needed = $38,000 - $27,000 = $11,000

Finally, we need to add back the amount of accounts written off during the year:

Adjustment needed = $11,000 + $42,000 = $53,000

Therefore, the correct answer is C.

Question 15

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $32,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debt expense for that period?

Accepted Answer

The bad debt expense is calculated by adjusting the Allowance for Doubtful Accounts to the estimated uncollectible amount. Since the allowance has a debit balance of $8,000, you need to add $40,000 to reach the estimated $32,000 credit balance ($32,000 + $8,000 = $40,000).

Question 16

A company has total accounts receivable of $500,000 for the year and it estimates that uncollectible accounts will be 3% of accounts receivable. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of

Accepted Answer

The estimated uncollectible accounts are 3% of $500,000, which is $15,000. Since the Allowance for Doubtful Accounts already has a credit balance of $2,000, the adjustment needed is $15,000 - $2,000 = $13,000. Therefore, the balance after adjustment will be $2,000 + $13,000 = $15,000.

Question 17

The direct write-off method of accounting for bad debts

Accepted Answer

The direct write-off method does not require any estimates of bad debt losses and simply writes off a debt when it is deemed uncollectible. However, this method is not the preferred method under generally accepted accounting principles because it does not accurately match revenue and expenses. It also does not use an allowance or contra-asset account.

Question 18

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debt expense for the period?

Accepted Answer

The formula for bad debt expense using the percentage-of-receivables method is:
Bad Debt Expense = Ending Accounts Receivable Balance x Estimated Uncollectible Percentage - Allowance for Doubtful Accounts (before adjustment)
We are given the estimated uncollectible accounts as $38,000 and the Allowance for Doubtful Accounts balance before adjustment as a $7,000 credit. 
Let x be the ending accounts receivable balance.
$38,000 = x * (uncollectible percentage)
We are not given the uncollectible percentage, so we cannot solve for x directly. However, we know that the Allowance for Doubtful Accounts needs to end up as a $38,000 credit after adjustment (to match the estimated uncollectibles). Since it currently has a balance of a $7,000 credit, we need to increase it by $31,000. This means the bad debt expense for the period is also $31,000 ($31,000 = x * uncollectible percentage - $7,000 and we want to solve for the unknown factor x*uncollectible percentage).

Question 19

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debt expense for the period?

Accepted Answer

The bad debt expense is calculated by adjusting the Allowance for Doubtful Accounts to the estimated uncollectible amount. Since the allowance has a $7,000 debit balance, you need to add $45,000 to reach the $38,000 credit balance (i.e., $38,000 + $7,000 = $45,000).

Question 20

An aging of a company's accounts receivable indicates that $5,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $900 credit balance, the adjustment to record bad debts for the period will require a

Accepted Answer

To adjust for bad debts, the company should debit Bad Debt Expense for the estimated uncollectible amount of $5,000, and credit Allowance for Doubtful Accounts for the same amount. However, since the Allowance for Doubtful Accounts already has a $900 credit balance, only $4,100 ($5,000 - $900) needs to be debited to the allowance account. This will bring the allowance account balance to $5,000, which will match the estimated uncollectible amount. Therefore, the correct choice is C, debit to Bad Debt Expense for $4,100.

Quiz 8: Accounting for Receivables