Question 1

The direct write-off method of accounting for bad debts

Accepted Answer

The direct write-off method does not require estimates of bad debt losses as it only records the actual uncollectible amount when it becomes known. However, this method is not preferred under generally accepted accounting principles as it does not match expenses with revenues and can result in significant delays in recording bad debts. Instead, the allowance method, which uses an allowance account to estimate and record anticipated bad debts, is preferred.

Question 2

Under the allowance method when a year-end adjustment is made for estimated uncollectible accounts

Accepted Answer

When a year-end adjustment is made for estimated uncollectible accounts, total assets decrease because the allowance for doubtful accounts (a contra asset) is increased and accounts receivable (an asset) is decreased by the same amount. This reduces the overall value of assets on the balance sheet.

Question 3

An analysis and aging of the accounts receivable of Watts Company at December 31 reveal these data: $\begin{array} { l  } 
 \text {Accounts receivable }&\$3,200,000\
 \text { Allowance for doubtful accounts per books before adjustment}&200,000\
 \text {  Amounts expected to become uncollectible}&260,000\
\end{array}$
 What is the cash realizable value of the accounts receivable at December 31 after adjustment?

Accepted Answer

The answer of An analysis and aging of the accounts...

Question 4

Under the allowance method of accounting for bad debts why must uncollectible accounts receivable be estimated at the end of the accounting period?

Accepted Answer

Under the allowance method, uncollectible accounts receivable must be estimated at the end of the accounting period in order to match bad debt expense to the period in which the revenues were earned. This is because the matching principle requires that expenses be recognized in the same period as the revenues to which they relate. By estimating the amount of uncollectible accounts receivable at the end of the accounting period, the business is able to determine the amount of bad debt expense that should be recorded for that period.

Question 5

The following information is related to December 31 2021 balances. $\begin{array}{lr}
\text { Accounts receivable } & \$ 1,400,000 \
\text { Allowance for doubtful accounts } & 120,000 \
\text { Cash realizable value } & 1,280,000
\end{array}$ During 2022 sales on account were $390000 and collections on account were $230000.Also during 2022 the company wrote off $22000 in uncollectible accounts.An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $144000.Bad debt expense for 2022 is:

Accepted Answer

The beginning allowance for doubtful accounts is $120,000. After writing off $22,000, the allowance is reduced to $98,000. The required ending balance is $144,000, so the bad debt expense for 2022 is $144,000 - $98,000 = $46,000.

Question 6

Johnson Company has a high inventory turnover that has increased over the last year.All of the following statements are true regarding this situation except Johnson Company:

Accepted Answer

The statement "is increasing the amount of inventory on hand relative to sales" is not true. A high inventory turnover means that a company is selling through its inventory quickly, which minimizes the amount of inventory on hand relative to sales. Option A is true because high inventory turnover means that Johnson Company is minimizing the funds tied up in inventory. Option C is also true because if Johnson Company doesn't have enough inventory on hand to meet customer demand, it may lose sales. Option D is true because a high inventory turnover means that Johnson Company is selling through its inventory quickly, which causes the cost of goods sold to increase relative to its average inventory.

Question 7

Using the allowance method the uncollectible accounts for the year are estimated to be $50000.If the balance for the Allowance for Doubtful Accounts is $9000 before adjustment what is the balance after adjustment?

Accepted Answer

The answer of Using the allowance method the uncollectible accounts...

Question 8

In reviewing the accounts receivable the cash realizable value is $28000 before the write-off of a $2000 account.What is the cash receivable value after the write-off?

Accepted Answer

The cash realizable value remains $28000 after the write-off because the write-off of an account does not affect the net realizable value of accounts receivable.

Question 9

When an account is written off using the allowance method the

Accepted Answer

The answer of When an account is written off using...

Question 10

Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Black Company's "days in inventory" for 2022 (to the closest decimal place)?" $$\begin{array}{l}
\begin{array} { | l | c | c | c | } 
\hline & \text { Year } & \begin{array} { c } 
\text { Inventory } \
\text { Turnover }
\end{array} & \text { Ending Inventory } \
\hline \text { Black Company } & 2020 & & \$ 26,340 \
\hline & 2021 & 8.7 & \$ 29,890 \
\hline & 2022 & 8.4 & \$ 30,100 \
\hline
\
\hline \text { Red Company } & 2020 & & \$ 25,860 \
\hline & 2021 & 7.0 & \$ 24,750 \
\hline & 2022 & 7.5 & \$ 22,530 \
\hline
\end{array}
\end{array}$$

Accepted Answer

Days in inventory is calculated as 365 divided by the inventory turnover ratio. For Black Company in 2022, it is 365 / 8.4 = 43.45, which rounds to 43.5 days.

Question 11

Using the allowance method the uncollectible accounts for the year is estimated to be $50000.If the balance for the Allowance for Doubtful Accounts is $9000 before adjustment what is the amount of bad debt expense for the period?

Accepted Answer

The bad debt expense for the period is equal to the estimated uncollectible accounts minus the beginning balance of the allowance for doubtful accounts. Therefore, bad debt expense = $50,000 - $9,000 = $41,000. Hence, option B is the correct answer.

Question 12

Using the percentage-of-receivables method for recording bad debt expense estimated uncollectible accounts are $45000.If the balance of the Allowance for Doubtful Accounts is $6000 balance 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. If the estimated uncollectible accounts are $45,000 and the current balance is $6,000, the bad debt expense is $45,000 - $6,000 = $39,000.

Question 13

The following information is related to December 31 2021 balances. $\begin{array}{lr}
\text { Accounts receivable } & \$ 3,150,000 \
\text { Allowance for doubtful accounts } & 270,000 \
\text { Cash realizable value } & \$ 2,880,000
\end{array}$ During 2022 sales on account were $870000 and collections on account were $516000.Also during 2022 the company wrote off $48000 in uncollectible accounts.An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $324000.Bad debt expense for 2022 is

Accepted Answer

The allowance for doubtful accounts needs to be adjusted to $324,000. The beginning balance was $270,000, and $48,000 was written off, leaving $222,000. To reach $324,000, an additional $102,000 is needed as bad debt expense.

Question 14

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 15

Under the allowance method of accounting for uncollectible accounts

Accepted Answer

Under the allowance method, the cash realizable value of accounts receivable (which is the balance sheet value) is reduced by the estimated uncollectible amount, which is already reflected in the allowance for doubtful accounts. Writing off a specific account only affects the allowance account and has no impact on the cash realizable value. Therefore, the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

Question 16

The balance of Allowance for Doubtful Accounts prior to making the adjustment to record Bad Debt Expense

Accepted Answer

The balance of Allowance for Doubtful Accounts prior to making the adjustment to record Bad Debt Expense is only relevant when using the percentage-of-receivables basis. The direct write-off method does not utilize the Allowance for Doubtful Accounts.

Question 17

Under the allowance method when a specific account is written off

Accepted Answer

The answer of Under the allowance method when a specific...

Question 18

Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Red Company's "days in inventory" for 2021 (to the closest decimal place)?" $$\begin{array}{l}
\begin{array} { | l | c | c | c | } 
\hline & \text { Year } & \begin{array} { c } 
\text { Inventory } \
\text { Turnover }
\end{array} & \text { Ending Inventory } \
\hline \text { Black Company } & 2020 & & \$ 26,340 \
\hline & 2021 & 8.7 & \$ 29,890 \
\hline & 2022 & 8.4 & \$ 30,100 \
\hline
\
\hline \text { Red Company } & 2020 & & \$ 25,860 \
\hline & 2021 & 7.0 & \$ 24,750 \
\hline & 2022 & 7.5 & \$ 22,530 \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Use the following information regarding Black Company...

Question 19

Allowance for Doubtful Accounts on the balance sheet

Accepted Answer

The allowance for doubtful accounts is a contra asset account that is used to reduce the carrying amount of accounts receivable to its net realizable value. Therefore, it is deducted from accounts receivable on the balance sheet.

Question 20

Use the following information regarding Black Company and Red Company to answer the question "Which of the following is Black Company's "cost of goods sold" for 2021 (to the closest dollar)?" $$\begin{array}{l}
\begin{array} { | l | c | c | c | } 
\hline & \text { Year } & \begin{array} { c } 
\text { Inventory } \
\text { Turnover }
\end{array} & \text { Ending Inventory } \
\hline \text { Black Company } & 2020 & & \$ 26,340 \
\hline & 2021 & 8.7 & \$ 29,890 \
\hline & 2022 & 8.4 & \$ 30,100 \
\hline
\
\hline \text { Red Company } & 2020 & & \$ 25,860 \
\hline & 2021 & 7.0 & \$ 24,750 \
\hline & 2022 & 7.5 & \$ 22,530 \
\hline
\end{array}
\end{array}$$

Accepted Answer