Question 1

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000.In addition,the records show the following:  What was the amount of Bad Debt Expense for the year?

Accepted Answer

A)  $96,000
B)  $64,000
C)  $80,000
D)  $16,000E) A) and D)
F) All of the above

Question 2

The allowance method for uncollectible accounts is used for accounts receivable but not for notes receivable.

Accepted Answer

A) True 
 B)False

Question 3

In normal circumstances,the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.

Accepted Answer

A) True 
 B)False

Question 4

In the interest formula,the interest rate is on a(n) _____ basis;therefore,the time variable must reflect how many _____ out of _____ in the interest period.

Accepted Answer

A)  monthly,months,6
B)  annual,years,1
C)  monthly,months,12
D)  annual,months,12E) A) and D)
F) All of the above

Question 5

The direct write-off method for uncollectible accounts is not allowed by GAAP because it ignores the conservatism concept and the matching principle.

Accepted Answer

A) True 
 B)False

Question 6

The method for estimating bad debts under the allowance method that focuses on the balance sheet rather than the income statement is based on

Accepted Answer

A)  a direct write-off.
B)  an aging of the receivables.
C)  credit sales.
D)  net sales.E) B) and D)
F) None of the above

Question 7

Which of the following statements about extending credit is not true?

Accepted Answer

A)  It is common for companies to sell on account to other companies.
B)  Some companies extend credit to individual consumers.
C)  Bad debts arise from credit sales to individual consumers,but not from credit sales to other companies.
D)  When credit is available,customers often buy more products and services.E) A) and B)
F) B) and C)

Question 8

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Accepted Answer

A) True 
 B)False

Question 9

For each of the following transactions,indicate how each will affect the elements of the accounting equation by answering increase,decrease,or no effect.
a.The company uses the direct write-off method and writes off specific receivables that have been identified as uncollectible.
b.The company uses the allowance method and records the bad debts expense for the year.
c.The company receives a 1-year promissory note from a customer in payment of his account because he needs additional time to pay.
d.The company receives a payment from a customer on his account which had been previously written off as worthless.
e.The company accrues interest earned on the note received in (c).

Accepted Answer

The answer of For each of the following transactions,indicate how...

Question 10

A company uses the percentage of credit sales method to estimate bad debt expense.At the end of the year,the company's unadjusted trial balance includes the following:  The company estimates,based on historical bad debt losses,that 0.5% of the sales will be uncollectible.What is the bad debt expense to be recorded for the year?

Accepted Answer

A)  $4,500
B)  $4,300
C)  $4,700
D)  $45,000E) A) and B)
F) B) and C)

Question 11

On January 31,2014,Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest.One month of this interest was accrued and recorded during the year ended December 31,2013.Upon receiving the payment,the company would:

Accepted Answer

A)  debit Interest Receivable for $2,340,debit Cash $2,340,and credit Interest Revenue for $4,680.
B)  debit Cash for $4,680,credit Interest Revenue for $2,340,and credit Interest Receivable for $2,340.
C)  debit Cash for $4,680,and credit Interest Receivable for $4,680.
D)  debit Cash for $4,680 and credit Interest Revenue for $4,680.E) A) and D)
F) B) and D)

Question 12

IBM signs an agreement to lend one of its customers $200,000 to be repaid in one year at 5.5% interest.IBM would record this loan as:

Accepted Answer

A)  notes payable.
B)  accounts receivable.
C)  notes receivable.
D)  unearned revenue.E) None of the above
F) A) and C)

Question 13

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.To record the potential bad debts,The Grass is Greener Corporation would:

Accepted Answer

A)  debit Accounts Receivable and credit Allowance for Doubtful Accounts for $120.
B)  debit Allowance for Doubtful Accounts and credit Bad Debt Expense for $120.
C)  debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $120.
D)  debit Bad Debt Expense and credit Accounts Receivable for $120.E) All of the above
F) B) and C)

Question 14

The potential disadvantages of extending credit include all of the following except which one?

Accepted Answer

A)  Increased borrowing costs.
B)  Customers buy too much.
C)  The need for a collections department.
D)  More staff hours spent in the accounting department.E) All of the above
F) B) and C)

Question 15

On December 1,2013,a company loaned a new employee $20,000 to assist with her relocation expenses.The employee signed a 6-month note,with interest of 9%.The company prepares year-end financial statements at December 31.What is the required adjusting entry at December 31 as a result of this note transaction?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) All of the above
F) B) and C)

Question 16

What is the amount due on the maturity date of a $5,000,3-month,10% note receivable?

Accepted Answer

A)  $5,125
B)  $5,500
C)  $6,500
D)  $5,000E) All of the above
F) C) and D)

Question 17

Use the information above to answer the following question.If Johnstone Supplies,Inc. ,writes off $3,081 of uncollectible accounts during August,2014,the unadjusted account balance in the allowance for doubtful accounts on August 31,2014 will be:

Accepted Answer

A)  $30,931.
B)  $5,065.
C)  $34,012.
D)  $1,984.E) B) and D)
F) A) and D)

Question 18

A company performed an aging of accounts receivable on December 31 and gathered the following information:  What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?

Accepted Answer

A)  $505,000
B)  $496,000
C)  $467,000
D)  $516,000E) All of the above
F) A) and B)

Question 19

Dry Corporation cannot pay off its account with Bone Corporation on a timely basis.Bone Corporation issues a $2,000,3-month,12% promissory note to Dry Corporation in settlement of an open accounts receivable.What entry will Bone Corporation make upon issuance?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and B)
F) A) and C)

Question 20

Use the information above to answer the following question.In January 2015,the company writes off a $500 account which it determines is uncollectible.If the company uses the allowance method,which of the following is true?

Accepted Answer

A)  The write-off will decrease the current assets by $500.
B)  The write-off will decrease net income for 2015 by $100.
C)  The write-off will decrease net accounts receivable by $100.
D)  The write-off will not increase the expenses for 2015.E) All of the above
F) C) and D)

Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

In normal circumstances,the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.

Correct Answer
verified

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Correct Answer
verified

Dry Corporation cannot pay off its account with Bone Corporation on a timely basis.Bone Corporation issues a $2,000,3-month,12% promissory note to Dry Corporation in settlement of an open accounts receivable.What entry will Bone Corporation make upon issuance?

Correct Answer
verified

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.To record the potential bad debts,The Grass is Greener Corporation would:

Correct Answer
verified

The method for estimating bad debts under the allowance method that focuses on the balance sheet rather than the income statement is based on

Correct Answer
verified

What is the amount due on the maturity date of a $5,000,3-month,10% note receivable?

Correct Answer
verified

IBM signs an agreement to lend one of its customers $200,000 to be repaid in one year at 5.5% interest.IBM would record this loan as:

Correct Answer
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Correct Answer
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The allowance method for uncollectible accounts is used for accounts receivable but not for notes receivable.

Correct Answer
verified

Use the information above to answer the following question.If Johnstone Supplies,Inc. ,writes off $3,081 of uncollectible accounts during August,2014,the unadjusted account balance in the allowance for doubtful accounts on August 31,2014 will be:

Correct Answer
verified

Correct Answer
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Correct Answer
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Use the information above to answer the following question.In January 2015,the company writes off a $500 account which it determines is uncollectible.If the company uses the allowance method,which of the following is true?

Correct Answer
verified

In the interest formula,the interest rate is on a(n) ___ basis;therefore,the time variable must reflect how many _ out of ___ in the interest period.

Correct Answer
verified

Which of the following statements about extending credit is not true?

Correct Answer
verified

The potential disadvantages of extending credit include all of the following except which one?

Correct Answer
verified

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000.In addition,the records show the following: What was the amount of Bad Debt Expense for the year?

Correct Answer
verified

The direct write-off method for uncollectible accounts is not allowed by GAAP because it ignores the conservatism concept and the matching principle.

Correct Answer
verified

On January 31,2014,Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest.One month of this interest was accrued and recorded during the year ended December 31,2013.Upon receiving the payment,the company would:

Correct Answer
verified

A company performed an aging of accounts receivable on December 31 and gathered the following information: What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?

Correct Answer
verified

Exam 8: Receivables, Bad Debt Expense, and Interest Revenue

In normal circumstances,the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.

Correct AnswerverifiedShow Answer

The aging of accounts receivable method is based upon the principle that the longer an account is overdue,the higher the risk of nonpayment.

Correct AnswerverifiedShow Answer

Dry Corporation cannot pay off its account with Bone Corporation on a timely basis.Bone Corporation issues a $2,000,3-month,12% promissory note to Dry Corporation in settlement of an open accounts receivable.What entry will Bone Corporation make upon issuance?

Correct AnswerverifiedShow Answer

The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.To record the potential bad debts,The Grass is Greener Corporation would:

Correct AnswerverifiedShow Answer

The method for estimating bad debts under the allowance method that focuses on the balance sheet rather than the income statement is based on

Correct AnswerverifiedShow Answer

What is the amount due on the maturity date of a $5,000,3-month,10% note receivable?

Correct AnswerverifiedShow Answer

IBM signs an agreement to lend one of its customers $200,000 to be repaid in one year at 5.5% interest.IBM would record this loan as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The allowance method for uncollectible accounts is used for accounts receivable but not for notes receivable.

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.If Johnstone Supplies,Inc. ,writes off $3,081 of uncollectible accounts during August,2014,the unadjusted account balance in the allowance for doubtful accounts on August 31,2014 will be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.In January 2015,the company writes off a $500 account which it determines is uncollectible.If the company uses the allowance method,which of the following is true?

Correct AnswerverifiedShow Answer

In the interest formula,the interest rate is on a(n) _____ basis;therefore,the time variable must reflect how many _____ out of _____ in the interest period.

Correct AnswerverifiedShow Answer

Which of the following statements about extending credit is not true?

Correct AnswerverifiedShow Answer

The potential disadvantages of extending credit include all of the following except which one?

Correct AnswerverifiedShow Answer

A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000.In addition,the records show the following: What was the amount of Bad Debt Expense for the year?

Correct AnswerverifiedShow Answer

The direct write-off method for uncollectible accounts is not allowed by GAAP because it ignores the conservatism concept and the matching principle.

Correct AnswerverifiedShow Answer

On January 31,2014,Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest.One month of this interest was accrued and recorded during the year ended December 31,2013.Upon receiving the payment,the company would:

Correct AnswerverifiedShow Answer

A company performed an aging of accounts receivable on December 31 and gathered the following information: What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?

Correct AnswerverifiedShow Answer

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In the interest formula,the interest rate is on a(n) ___ basis;therefore,the time variable must reflect how many _ out of ___ in the interest period.

Correct Answer
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