Question Details

CHAPTER 9 ACCOUNTING FOR RECEIVABLES PART 5

MULTIPLE CHOICE QUESTIONS

9 - 10 Test Bank for Accounting Principles, Eighth Edition
61. When an account becomes uncollectible and must be written off,
a. Allowance for Doubtful Accounts should be credited.
b. Accounts Receivable should be credited.
c. Bad Debts Expense should be credited.
d. Sales should be debited.
62. The collection of an account that had been previously written off under the allowance
method of accounting for uncollectibles
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written off.
d. does not affect income in the period it is collected.
63. The percentage of sales basis of estimating expected uncollectibles
a. emphasizes the matching of expenses with revenues.
b. emphasizes balance sheet relationships.
c. emphasizes cash realizable value.
d. is not generally accepted as a basis for estimating bad debts.
64. An aging of a company's accounts receivable indicates that $9,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debts Expense for $9,000.
b. debit to Allowance for Doubtful Accounts for $7,900.
c. debit to Bad Debts Expense for $7,900.
d. credit to Allowance for Doubtful Accounts for $9,000.
65. A debit balance in the Allowance for Doubtful Accounts
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad
debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of sales method of estimating bad debts is used.
66. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts
Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
67. An alternative name for Bad Debts Expense is
a. Deadbeat Expense.
b. Uncollectible Accounts Expense.
c. Collection Expense.
d. Credit Loss Expense.
68. A reasonable amount of uncollectible accounts is evidence
a. that the credit policy is too strict.
b. that the credit policy is too lenient.
c. of a sound credit policy.
d. of poor judgments on the part of the credit manager.
Accounting for Receivables
9 - 11
69. Bad Debts Expense is considered
a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.
70. The best managed companies will have
a. no uncollectible accounts.
b. a very strict credit policy.
c. a very lenient credit policy.
d. some accounts that will prove to be uncollectible.
71. Two methods of accounting for uncollectible accounts are the
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
72. The allowance method of accounting for uncollectible accounts is required if
a. the company makes any credit sales.
b. bad debts are significant in amount.
c. the company is a retailer.
d. the company charges interest on accounts receivable.
73. Bad Debts Expense is reported on the income statement as
a. part of cost of goods sold.
b. reducing gross profit.
c. an operating expense.
d. a contra-revenue account.
74. When the allowance method of accounting for uncollectible accounts is used, Bad Debts
Expense is recorded
a. in the year after the credit sale is made.
b. in the same year as the credit sale.
c. as each credit sale is made.
d. when an account is written off as uncollectible.
75. The method of accounting for uncollectible accounts that results in a better matching of
expenses with revenues is the
a. aging accounts receivable method.
b. direct write-off method.
c. percentage of receivables method.
d. percentage of sales method.
76. To record estimated uncollectible accounts using the allowance method, the adjusting
entry would be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.
9 - 12 Test Bank for Accounting Principles, Eighth Edition
77. Under the allowance method of accounting for uncollectible accounts,
a. the cash realizable value of accounts receivable is greater before an account is written
off than after it is written off.
b. Bad Debts Expense is debited when a specific account is written off as uncollectible.
c. the cash realizable value of accounts receivable in the balance sheet is the same
before and after an account is written off.
d. Allowance for Doubtful Accounts is closed each year to Income Summary.
78. Allowance for Doubtful Accounts on the balance sheet
a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading "Other Assets."
d. is offset against accounts receivable.
79. When an account is written off using the allowance method, the
a. cash realizable value of total accounts receivable will increase.
b. total accounts receivable will decrease.
c. allowance account will increase.
d. total accounts receivable will stay the same.
80. If an account is collected after having been previously written off,
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.