Question 1

Last year, the Tilden Co. had credit sales in the amount of $470,000, and it had uncollectible accounts in the amount of $4,700. Based on last year, what would the percent of estimated uncollectible accounts be this year?

Accepted Answer

The percent of estimated uncollectible accounts is calculated by dividing the amount of uncollectible accounts by the total credit sales. $4,700 / $470,000 = 0.01 or 1%.

Question 2

Dude Ranch Circle estimates its uncollectible accounts at 1.5% of its credit sales of $825,000. When adjusting for estimated losses from uncollectible accounts, the debit to Bad Debt Expense is

Accepted Answer

The answer of Dude Ranch Circle estimates its uncollectible accounts...

Question 3

After aging the accounts receivable, it is estimated that $1,200 will not be collected and the allowance account has an existing credit balance of $400. If the accounts receivable total $130,000, the net receivables would be

Accepted Answer

Net receivables = Accounts receivable - Allowance for doubtful accounts= $130,000 - ($1,200 - $400)= $130,000 - $800= $129,200

Question 4

Which of the following is an advantage of using the direct write-off method?

Accepted Answer

The direct write-off method is simple to apply, as it involves simply recognizing a bad debt expense when a customer's account is deemed uncollectible and writing off the specific amount owed. However, this method does not provide an accurate representation of the amount of accounts receivable that will actually be collected, and the recognition of bad debt expense may not align with the recognition of revenue in the same accounting period. Additionally, since specific customer accounts are written off individually, there is a risk of manipulation by management in terms of which accounts are chosen to be written off.

Question 5

When making the current period's adjusting entry under the percentage of sales method, the balance in Allowance for Bad Debts is

Accepted Answer

The answer of When making the current period's adjusting entry...

Question 6

On the balance sheet, any account having a balance intended to be deducted from another related account balance for financial statement purposes is known as a(n)

Accepted Answer

A contra account is used to offset the balance of another related account on the balance sheet. It is intended to be subtracted from its related account balance for financial statement purposes.

Question 7

Accountants argue that which of the following approaches to estimating Allowance for Bad Debts provides a realistic estimate of the net receivables?

Accepted Answer

Aging the accounts receivable allows for a more accurate estimate of the amount of accounts that are likely to be uncollectible, based on the length of time they have been outstanding. This approach takes into consideration the specific demographics of the company's accounts receivable and is therefore considered to be the most realistic approach. Taking a percentage of net sales or revenue does not take into account the age or likelihood of payment of individual accounts. Analyzing sales on account may assist in identifying potential problem accounts, but does not provide a comprehensive estimate of the net receivables.

Question 8

The amounts that cannot be collected from charge customers are called

Accepted Answer

Bad Debt Expense refers to the amount that cannot be collected from charge customers. Collection Deficiency Expense refers to the cost of collecting the amount owed, while Loss from Uncollectible Accounts and Uncollectible Charges Expense are not commonly used accounting terms.

Question 9

In view of past experience, it is expected there will be a loss due to uncollectible accounts of an amount equal to one-half of one percent of the sales on account during the year. If the sales on account amounted to $250,000, the estimated uncollectible account losses would be

Accepted Answer

The estimated uncollectible account losses would be 0.5% of $250,000, which is $1,250.

Question 10

Which of the following is a method of accounting for uncollectible accounts?

Accepted Answer

The allowance method is the method of accounting for uncollectible accounts, whereby a company estimates the amount of uncollectible accounts and creates a contra asset account, Allowance for Doubtful Accounts, to reduce the carrying amount of accounts receivable on the balance sheet. This method is required by Generally Accepted Accounting Principles (GAAP).

Question 11

The expense associated with an uncollectible account is recognized when it has been determined that a customer will not pay the amount owed under the

Accepted Answer

The direct write-off method recognizes the expense when it is determined that a specific account is uncollectible, rather than estimating uncollectible accounts in advance.

Question 12

Under the direct write-off method, when a previously written-off account is recovered in the same accounting period, which of the following entries is required to reinstate the account?

Accepted Answer

When a previously written-off account is recovered, the account needs to be reinstated by debiting Accounts Receivable and crediting Bad Debt Expense, reversing the initial write-off entry.

Question 13

After aging the accounts receivable, it is estimated that $420 will not be collected and the allowance account has an existing debit balance of $100. If accounts receivable is $145,000, the net receivables would be

Accepted Answer

To calculate net receivables, we need to subtract the amount estimated to be uncollectible and the existing debit balance in the allowance account from the total accounts receivable.

Net Receivables = Accounts Receivable - (Estimated Uncollectible + Allowance for Doubtful Accounts)

Net Receivables = $145,000 - ($420 + $100) = $144,580

Therefore, the answer is B) $144,580.

Question 14

The allowance for bad debts account is contra to which of the following accounts?

Accepted Answer

The allowance for bad debts account is contra to accounts receivable, as it represents a reduction in the amount of accounts receivable that is actually expected to be collected. It is not contra to revenue, cash, or bad debt expense.

Question 15

The adjusting entry to record an increase in Allowance for Bad Debts involves

Accepted Answer

The correct entry to increase the Allowance for Bad Debts is to debit Bad Debt Expense and credit Allowance for Bad Debts, reflecting the estimated uncollectible accounts.

Question 16

One major cost of selling goods on account could be

Accepted Answer

Selling goods on account means extending credit to customers, which can result in some customers failing to pay their bills. This creates uncollectible accounts or bad debts, which can be a major cost to the seller.

Question 17

The accounting concept that states expenses should be recognized in the same period with the revenues they helped to produce is the

Accepted Answer

The matching principle states that expenses should be recognized in the same period with the revenues they helped to produce. This means that the expenses related to generating revenue should be recognized in the same period as the revenue is recognized, resulting in more accurate financial statements. The contra-account principle, allowance method, and uncollectible accounts technique are all related to accounting treatments for specific types of transactions, but they are not directly related to the recognition of expenses and revenue in the same period.

Question 18

Under the allowance method, to write off an account that has been determined to be uncollectible, the entry would include

Accepted Answer

Under the allowance method, when an account is determined to be uncollectible, the entry is to debit Allowance for Bad Debts and credit Accounts Receivable to remove the uncollectible account from the books.

Question 19

When an account has been written off under the direct write-off method in one period and is collected in a subsequent period, the credit to reinstate the account is made to

Accepted Answer

The answer of When an account has been written off...

Question 20

After aging the accounts receivable, it is estimated that $790 will not be collected and the allowance account has an existing debit balance of $230. The adjusting entry under the aging approach would be for the amount of

Accepted Answer

The adjusting entry should bring the allowance account to the estimated uncollectible amount of $790. Since there is a debit balance of $230, you need to credit $1,020 to offset the debit and reach the desired credit balance.

Quiz 16: Accounting for Accounts Receivable