Question 1

A company collects an account receivable previously written off.Indicate how this transaction would affect (1)assets, (2)stockholders' equity,and (3)revenues.

Accepted Answer

When a previously written-off account receivable is collected, it does not affect the financial statements because the write-off and subsequent collection are both adjustments to the allowance for doubtful accounts and accounts receivable, which are balance sheet accounts. There is no impact on revenues or stockholders' equity.

Question 2

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?

Accepted Answer

Accepting a note receivable in exchange for an account receivable simply changes the composition of the company's assets without altering the total amount of assets. The account receivable (an asset) is replaced by a note receivable (also an asset), keeping the total assets unchanged.

Question 3

Which accounting concept does the direct write-off method violate?

Accepted Answer

The direct write-off method violates the matching principle, which is an accounting concept that attempts to match revenues and their related expenses in the period in which they occur, rather than when cash is paid or received. This method records bad debt expense only when specific accounts are deemed uncollectible, which may not align with the period in which the related revenue was recognized.

Question 4

The direct write-off method is an acceptable method for what purpose?

Accepted Answer

The direct write-off method is an acceptable method for tax reporting, as it allows for the immediate deduction of bad debts as they are identified. However, it is not compliant with Generally Accepted Accounting Principles, which require the use of the allowance method for financial statement reporting.

Question 5

Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?

Accepted Answer

According to Generally Accepted Accounting Principles, direct write-off method is not allowed for the purpose of accounting for uncollectible accounts because it does not accurately match expenses with revenues and violates the matching principle. The allowance method and aging method are the two acceptable methods.

Question 6

The distinction between the direct write-off method and the allowance method is:

Accepted Answer

The distinction between the direct write-off method and the allowance method lies in how bad debt expense is reported in each year. Under the direct write-off method, bad debt expense is only recognized when a specific customer's account is deemed uncollectible and written off. This means that bad debt expense is only reported in the year the write-off occurs. On the other hand, under the allowance method, bad debt expense is estimated and recorded in each year based on a percentage of credit sales or accounts receivable balance. This allows for a more accurate reflection of the company's bad debt situation and creates a cumulative amount of bad debt expense reported across years.

Question 7

Collections of accounts receivable that previously have been written off are credited to:

Accepted Answer

When collections are made on accounts receivable that have previously been written off, the amount is credited back to the Accounts Receivable account to reflect the recovery of the asset.

Question 8

At the beginning of 2018,the balance in Jackson Enterprises' Allowance for Uncollectible Accounts was $31,800.During 2018,the company wrote off $38,000 of accounts receivable.Writing off the individual bad debts would include a:

Accepted Answer

The answer of At the beginning of 2018,the balance in...

Question 9

A note receivable is reported in the balance sheet:

Accepted Answer

A note receivable can be reported as either a current asset or a long-term asset depending on the expected collection date. If the note is expected to be collected within one year, it is reported as a current asset. If it is expected to be collected after one year, it is reported as a long-term asset.

Question 10

Under the direct write-off method,what adjustment is made at the end of the year to account for possible future bad debts?

Accepted Answer

No adjustment is made under the direct write-off method at the end of the year to account for possible future bad debts. This method assumes that all accounts receivable will be collected, and bad debts are only recognized when they become uncollectible.

Question 11

The direct write-off method is used when:

Accepted Answer

The direct write-off method is used when uncollectible accounts are not anticipated or are immaterial. This means that the company does not expect to have any significant losses from customers who do not pay their bills, or the losses incurred are not significant enough to warrant a more complex method of accounting for bad debts.

Question 12

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.Over the next six months,what effect will accepting the note receivable have on the company's financial statements?

Accepted Answer

Accepting the note receivable will increase total assets (the note receivable is an asset) and net income (the interest earned on the note is income).

Question 13

Under the direct write-off method,what adjustment is made at the time an actual bad debt occurs?

Accepted Answer

Under the direct write-off method, an adjustment is made at the time an actual bad debt occurs by debiting Bad Debt Expense and crediting Accounts Receivable. This method does not use an Allowance for Uncollectible Accounts.

Question 14

The direct write-off method is not normally an acceptable method for GAAP because it fails to report:

Accepted Answer

The direct write-off method only recognizes bad debts when they are actually deemed uncollectible, thus failing to report accounts receivable for their net realizable value. This method also does not affect revenue or cash collected from customers. Using this method can result in financial statements that are not consistent with GAAP. Therefore, C is the best choice.

Question 15

Lail Inc.accounts for bad debts using the allowance method.On June 1,Lail Inc.wrote off Andrew Green's $2,500 account.Based on Lail's estimation,Andrew Green will never pay any portion of the balance in his account.What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?

Accepted Answer

Writing off Andrew Green's account will have no effect on Lail Inc.'s balance sheet as the allowance for bad debts would have already accounted for the potential loss from his account. The write-off simply confirms that the company has determined that the amount is uncollectible.

Question 16

If the direct write-off method is used to account for uncollectible accounts,which of the following statements is false?

Accepted Answer

Under the direct write-off method, accounts receivable are not adjusted to reflect their net realizable value. Instead, specific accounts are directly written off when deemed uncollectible, without estimating future uncollectibles or adjusting the accounts receivable balance beforehand.

Question 17

A(n)______ receivable is an informal credit arrangement with trade customers,whereas a(n)______ receivable is a formal signed credit arrangement between a creditor and a debtor.

Accepted Answer

An account receivable is an informal credit arrangement with trade customers, where the customer buys goods or services on credit and pays the debt at a later date. A note receivable, on the other hand, is a formal signed credit arrangement between a creditor and a debtor, outlining the terms and conditions of the loan, including the repayment plan and interest rate. Revenue does not pertain to receivables and is not related to the credit arrangement type. Therefore, option A is the correct choice.

Question 18

The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000,respectively.If the amount of Bad Debt Expense for the year is $18,000,what is the amount of actual bad debts for the year?

Accepted Answer

The change in the allowance account is $4,000 ($27,000 - $23,000). Since Bad Debt Expense is $18,000, the actual write-offs must be $14,000 ($18,000 - $4,000).

Question 19

The direct write-off method is generally not permitted for financial reporting purposes because:

Accepted Answer

The direct write-off method does not properly match expenses with revenues because bad debts are only recognized when they are actually written off as uncollectible, which may occur at a different time period from when the related credit sale was made. This violates the matching principle of accounting. The allowance method is preferred because it estimates future bad debts and recognizes them as expenses in the same period as the credit sale, providing better matching of expenses with revenues.

Question 20

The primary difference between a note receivable and an account receivable is:

Accepted Answer

The primary difference between a note receivable and an account receivable is that a note receivable is evidenced by a written debt instrument, such as a promissory note, while an account receivable may only be documented by a sales invoice or other billing statement. The other options presented are not accurate distinctions between these two types of receivables.

Quiz 5: Receivables and Sales

A company collects an account receivable previously written off.Indicate how this transaction would affect (1) assets, (2) stockholders' equity,and (3) revenues.

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?

Which accounting concept does the direct write-off method violate?

The direct write-off method is an acceptable method for what purpose?

Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?

The distinction between the direct write-off method and the allowance method is:

Collections of accounts receivable that previously have been written off are credited to:

At the beginning of 2018,the balance in Jackson Enterprises' Allowance for Uncollectible Accounts was $31,800.During 2018,the company wrote off $38,000 of accounts receivable.Writing off the individual bad debts would include a:

A note receivable is reported in the balance sheet:

Under the direct write-off method,what adjustment is made at the end of the year to account for possible future bad debts?

The direct write-off method is used when:

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.Over the next six months,what effect will accepting the note receivable have on the company's financial statements?

Under the direct write-off method,what adjustment is made at the time an actual bad debt occurs?

The direct write-off method is not normally an acceptable method for GAAP because it fails to report:

If the direct write-off method is used to account for uncollectible accounts,which of the following statements is false?

A(n) receivable is an informal credit arrangement with trade customers,whereas a(n) receivable is a formal signed credit arrangement between a creditor and a debtor.

The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000,respectively.If the amount of Bad Debt Expense for the year is $18,000,what is the amount of actual bad debts for the year?

The direct write-off method is generally not permitted for financial reporting purposes because:

The primary difference between a note receivable and an account receivable is:

Quiz 5: Receivables and Sales

A company collects an account receivable previously written off.Indicate how this transaction would affect (1) assets, (2) stockholders' equity,and (3) revenues.

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?

Which accounting concept does the direct write-off method violate?

The direct write-off method is an acceptable method for what purpose?

Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?

The distinction between the direct write-off method and the allowance method is:

Collections of accounts receivable that previously have been written off are credited to:

At the beginning of 2018,the balance in Jackson Enterprises' Allowance for Uncollectible Accounts was $31,800.During 2018,the company wrote off $38,000 of accounts receivable.Writing off the individual bad debts would include a:

A note receivable is reported in the balance sheet:

Under the direct write-off method,what adjustment is made at the end of the year to account for possible future bad debts?

The direct write-off method is used when:

Suppose a customer is unable to pay its account on time,so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable.Over the next six months,what effect will accepting the note receivable have on the company's financial statements?

Under the direct write-off method,what adjustment is made at the time an actual bad debt occurs?

The direct write-off method is not normally an acceptable method for GAAP because it fails to report:

If the direct write-off method is used to account for uncollectible accounts,which of the following statements is false?

A(n) ______ receivable is an informal credit arrangement with trade customers,whereas a(n) ______ receivable is a formal signed credit arrangement between a creditor and a debtor.

The current year's beginning and ending balances for Allowance for Uncollectible Accounts is $23,000 and $27,000,respectively.If the amount of Bad Debt Expense for the year is $18,000,what is the amount of actual bad debts for the year?

The direct write-off method is generally not permitted for financial reporting purposes because:

The primary difference between a note receivable and an account receivable is:

A(n) receivable is an informal credit arrangement with trade customers,whereas a(n) receivable is a formal signed credit arrangement between a creditor and a debtor.