Question 1

After the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $540,000 and Allowance for Doubtful Accounts has a normal balance of $25,000.What is the net realizable value of the Accounts Receivable?
A)$540,000
B)$565,000
C)$515,000
D)The amount cannot be determined from the given information.

Accepted Answer

The net realizable value of the Accounts Receivable is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable balance. Therefore, $540,000 - $25,000 = $515,000.

Question 2

Under the allowance method,Bad Debt Expense is recorded:
A)as an estimate.
B)when an individual account is written off.
C)several times during the year as needed.
D)None of these answers is correct.

Accepted Answer

Under the allowance method, Bad Debt Expense is recorded as an estimate of the amount that will eventually become uncollectible. It is not based on individual accounts being written off or recorded several times throughout the year.

Question 3

Bad Debts Expense is:
A)included in Cost of Goods Sold.
B)considered an expense matched with revenues.
C)listed on the balance sheet.
D)not an operating expense.

Accepted Answer

Bad Debts Expense is an expense that is matched with revenues on the income statement. It represents the loss that a company incurs when it cannot collect money that is owed to it. It is not included in Cost of Goods Sold, is not listed on the balance sheet, and is considered an operating expense.

Question 4

The Allowance for Doubtful Accounts is listed on the balance sheet under the caption:
A)owner's equity.
B)current liabilities.
C)current assets.
D)fixed assets.

Accepted Answer

The Allowance for Doubtful Accounts is a contra-asset account that is subtracted from Accounts Receivable, which is a current asset. Therefore, the Allowance for Doubtful Accounts would also be listed as a current asset on the balance sheet.

Question 5

Which financial statement reports Allowance for Doubtful Accounts?
A)Balance sheet
B)Income statement
C)Statement of owner's equity
D)None of these answers is correct.

Accepted Answer

Allowance for Doubtful Accounts is a contra-asset account that is reported on the balance sheet. It is used to adjust the accounts receivable balance for the estimated amount of uncollectible accounts. It is not reported on the income statement or statement of owner's equity.

Question 6

The Allowance for Doubtful Accounts is adjusted:
A)at the end of each accounting period.
B)each time a customer's debt is satisfied.
C)within one year of granting credit to a customer.
D)each time a customer is granted credit.

Accepted Answer

The Allowance for Doubtful Accounts is adjusted at the end of each accounting period to accurately reflect the estimated amount of accounts receivable that will not be collected. This adjustment helps to ensure that the financial statements present a realistic picture of the company's financial position and performance.

Question 7

Which of the following situations would more likely not result in bad debts?
A)The company extends credit easily.
B)The company has a strict credit policy.
C)The company has a cash only policy.
D)None of these answers are correct.

Accepted Answer

A cash-only policy means the company does not extend credit to customers, thereby eliminating the risk of bad debts since transactions are settled immediately with cash.

Question 8

1 Fit City estimates it will collect $2,300 of the $2,425 owed by customers.The difference of $125 represents the:
A)Gross Accounts Receivable.
B)Allowance for Doubtful Accounts.
C)Net Realizable Value.
D)Value of the Current Unpaid Receivables.

Accepted Answer

The difference of $125 represents the Allowance for Doubtful Accounts, which is an estimate of the receivables that may not be collected.

Question 9

When a customer's account is written off:
A)net realizable value of the Accounts Receivable increases.
B)net realizable value of the Accounts Receivable decreases.
C)net realizable value of the Accounts Receivable remains the same.
D)none of the above

Accepted Answer

When a customer's account is written off, the net realizable value of the Accounts Receivable remains the same because the allowance for doubtful accounts, which is an estimate of uncollectible accounts, has already accounted for this potential loss. Writing off an account simply adjusts the accounts receivable and allowance accounts, but does not affect the net realizable value.

Question 10

Which account is classified as a contra-asset?
A)Bad Debts Expense
B)Accounts Receivable
C)Sales Returns and Allowances
D)Allowance for Doubtful Accounts

Accepted Answer

Allowance for Doubtful Accounts is a contra-asset account that is subtracted from the Accounts Receivable account on the balance sheet to reflect the amount of accounts receivable that is likely to be uncollectible.

Question 11

The amount of Accounts Receivable a company estimates it will collect is the:
A)Gross Accounts Receivable.
B)Bad Debts Allowance.
C)Net Realizable Value.
D)Accounts Receivable Allowance.

Accepted Answer

The amount of Accounts Receivable a company estimates it will collect is known as the Net Realizable Value. This is calculated by subtracting the Bad Debts Allowance (the amount the company expects to not collect) from the Gross Accounts Receivable (the total amount owed to the company). Therefore, the correct choice is C.

Question 12

What type of account is a Bad Debts Expense?
A)Asset
B)Contra-asset
C)Expense
D)Liability

Accepted Answer

Bad Debts Expense is a type of expense account which records the amount of money that the company expects to lose due to customers who do not pay their debts. It is not an asset, contra-asset, or liability account.

Question 13

Estimating Bad Debts Expense is an example of:
A)recording accrued expense.
B)the matching principle.
C)the balance sheet approach.
D)recording accrued sales.

Accepted Answer

Estimating Bad Debts Expense is an example of applying the matching principle, which requires expenses to be recognized in the same period as the associated revenues. This means that bad debts expense should be recorded in the period that the related sales were made, even if the actual bad debts become evident at a later date.

Question 14

The entry to adjust for bad debts was ignored.This error would cause:
A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these are correct.

Accepted Answer

Ignoring the entry to adjust for bad debts would cause total assets to be overstated because the accounts receivable would not be reduced to reflect the expected uncollectible amounts.

Question 15

A major cost of selling goods on account could be:
A)accounts payable.
B)cash shortages.
C)easy credit.
D)uncollectible accounts.

Accepted Answer

Selling goods on account means that the customer is given a credit period to pay for the goods. Uncollectible accounts refer to customers who do not pay their dues and become bad debts. This becomes a major cost for the seller as they have already supplied goods but do not receive the payment in return, leading to a loss.

Question 16

Fit City estimates it will collect $2,300 of the $2,425 owed by customers.The estimated collectible amount is called:
A)the Bad Debts Allowance.
B)the Net Realizable Value.
C)the Allowance for Doubtful Accounts.
D)the Gross Accounts Receivable.

Accepted Answer

The estimated collectible amount is the Net Realizable Value, which is the expected amount a company will receive from its accounts receivable after deducting the estimated portion that will not be collected (i.e., the allowance for doubtful accounts or bad debts allowance). Therefore, option B is the correct choice. Option A refers to the estimated amount of uncollectible accounts, while option C refers to the contra-asset account that reduces the gross accounts receivable to the net realizable value. Option D simply refers to the total amount owed by customers, which is not relevant to the question.

Question 17

Net Realizable Value can be defined as:
A)the Gross Accounts Receivable.
B)the Current Bad Debts Expense.
C)the amount of Accounts Receivable you do not expect to collect.
D)the Gross Accounts Receivable minus the Allowance for Doubtful Accounts.

Accepted Answer

Net Realizable Value is calculated as the Gross Accounts Receivable minus the Allowance for Doubtful Accounts, which represents the amount of Accounts Receivable the company does not expect to collect. Therefore, the correct choice is D.

Question 18

What type of account is an Allowance for Doubtful Accounts?
A)Asset
B)Contra-asset
C)Revenue
D)Contra-revenue

Accepted Answer

An Allowance for Doubtful Accounts is a contra-asset account which is used to reduce the value of accounts receivable to reflect the estimated amount of accounts that may not be collectible. This type of account is subtracted from the total accounts receivable on the balance sheet.

Question 19

A company uses the allowance method and expects not to collect $15,000 of sales.The journal entry to record the estimated bad debt is:
A) $\begin{array} { | c | l l | } 
\hline \text { Allowance for Doubtful Accounts } & \$ 15,000 & \
\hline \text { Bad Debt Expense } & \$ 15,000 \
\hline
\end{array}$
B) $\begin{array} { | r | l l | } 
\hline\text { Allowance for Doubtful Accounts } & \$ 15,000 & \
\hline \text { Accounts Receivable } & \$ 15,000 \
\hline
\end{array}$

C) $\begin{array} { | c | l c | } 
\hline\text { Accounts Receivable } & \$ 15,000 \
\hline \text { Allowance for Doubtful Accounts } & \$ 15,000 \
\hline
\end{array}$
D) $\begin{array} { | c | l c | } 
\hline\text { Bad Debt Expense } & \$ 15,000 \
\hline \text { Allowance for Doubtful Accounts } & \$ 15,000 \
\hline
\end{array}$

Accepted Answer

The correct journal entry to record the estimated bad debt using the allowance method increases Bad Debt Expense and increases the Allowance for Doubtful Accounts. This reflects the expected loss from uncollectible accounts without directly reducing Accounts Receivable.

Question 20

Before the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $200,000 and Allowance for Doubtful Accounts has a debit balance $20,000.What is the net realizable value of the accounts receivable?
A)$180,000
B)$20,000
C)$220,000
D)$200,000

Accepted Answer

The answer of Before the accounts are adjusted and closed...

Quiz 13: Accounting for Bad Debts

After the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $540,000 and Allowance for Doubtful Accounts has a normal balance of $25,000.What is the net realizable value of the Accounts Receivable?

Under the allowance method,Bad Debt Expense is recorded:

Bad Debts Expense is:

The Allowance for Doubtful Accounts is listed on the balance sheet under the caption:

Which financial statement reports Allowance for Doubtful Accounts?

The Allowance for Doubtful Accounts is adjusted:

Which of the following situations would more likely not result in bad debts?

1 Fit City estimates it will collect $2,300 of the $2,425 owed by customers.The difference of $125 represents the:

When a customer's account is written off:

Which account is classified as a contra-asset?

The amount of Accounts Receivable a company estimates it will collect is the:

What type of account is a Bad Debts Expense?

Estimating Bad Debts Expense is an example of:

The entry to adjust for bad debts was ignored.This error would cause:

A major cost of selling goods on account could be:

Fit City estimates it will collect $2,300 of the $2,425 owed by customers.The estimated collectible amount is called:

Net Realizable Value can be defined as:

What type of account is an Allowance for Doubtful Accounts?

A company uses the allowance method and expects not to collect $15,000 of sales.The journal entry to record the estimated bad debt is:

Before the accounts are adjusted and closed at the end of the year,Accounts Receivable has a normal balance of $200,000 and Allowance for Doubtful Accounts has a debit balance $20,000.What is the net realizable value of the accounts receivable?