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0% (0 out of 29 correct)

Responses to questions are indicated by the

symbol.

1. Notes and accounts receivable that result from sales transactions are often
called trade receivables.
A. True
B. False
This statement is correct (Types of Receivables).

2. The opportunity to receive a cash discount usually occurs when a retailer sells
to customers.
A. True
B. False
Retailers rarely grant cash discounts to customers (Recognizing Accounts
Receivable).

3. Cash (net) realizable value is the net amount the company expects to receive in
cash.
A. True
B. False
This statement is correct (Allowance Method For Uncollectible Accounts).

4. The percentage-of-receivables basis results in a better matching of expenses


with revenues than the percentage-of-sales basis.
A. True
B. False
The percentage-of-sales basis results in a better matching of expenses with
revenues than the percentage-of-receivables basis (Bases Used for Allowance
Method).

5. Under the percentage-of-receivables basis, the amount of bad debt expense is


the difference between the required balance and the existing balance in the
allowance account.
A. True
B. False
This statement is correct (Percentage of Receivables).

6. Retailers consider sales from the use of national credit cards as credit sales.
A. True
B. False
Sales from the use of national credit cards are considered cash sales by the
retailer (Accounting for Credit Card Sales).

7. In a promissory note, the party making the promise to pay is called the maker.
A. True
B. False
This is a correct statement (Notes Receivable).

8. To determine the maturity date of a note, you need to include the date the note
is issued but omit the due date.
A. True
B. False
You need to omit the date the note is issued but include the due date to
determine the maturity date of a note (Determining the Maturity Date).

9. Companies report short-term notes receivable at their cash (net) realizable


value.
A. True
B. False

This is a correct statement (Valuing Notes Receivable).

10. A dishonored note receivable is no longer negotiable and the payee has no
claim against the maker of the note.
A. True
B. False
The payee of a dishonored note receivable still has a claim against the maker
of the note (Dishonor of Notes Receivable).

11. Accounting issues associated with accounts receivable include all of the
following except:
A. recognizing accounts receivable.
B. valuing accounts receivable.
C. disposing of accounts receivable.
D. analyzing accounts receivable.

12. Companies report accounts receivable on the balance sheet at:


A. cost.
B. cash (net) realizable value.
C. gross realizable value.
D. face value.

13. Allowance for Doubtful Accounts is:


A. closed at the end of the fiscal year.
B. an operating expense.
C. a contra asset account.
D. added to Accounts Receivable on the balance sheet.

14. Under the allowance method, estimated uncollectible receivables are credited
to:
A. Bad Debts Expense.
B. Accounts Receivable.
C. Allowance for Doubtful Accounts.

D. Uncollectible Accounts Expense.

15. Writing off an uncollectible account under the allowance method requires a
debit to:
A. Accounts Receivable.
B. Allowance for Doubtful Accounts.
C. Bad Debts Expense.
D. Uncollectible Accounts Expense.

16. The percentage-of-sales basis of estimating uncollectibles:


A. produces a better estimate of cash realizable value.
B. results in a better matching of expenses with revenues.
C. emphasizes balance sheet relationships.
D. considers the existing balance in Allowance for Doubtful Accounts.

17. The percentage-of-receivables basis of estimating uncollectibles:


A. produces a better estimate of cash realizable value.
B. results in a better matching of expenses with revenues.
C. emphasizes income statement relationships.
D. ignores the existing balance in Allowance for Doubtful Accounts.

18. The direct write-off method:


A. is acceptable for financial reporting purposes.
B. debits Allowance for Doubtful Accounts to record write-offs of
accounts.
C. shows only actual losses from uncollectible accounts.
D. estimates bad debt losses.

19. In recording the sale of accounts receivable, the commission charged by a


factor is recorded as:
A. Bad Debts Expense.
B. Commission Expense.
C. Loss on Sale of Receivables.
D. Service Charge Expense.

20. Sales resulting from the use of Visa and MasterCard credit cards are
considered:
A. cash sales.
B. credit sales.
C. credit card sales.
D. card sales.

21. The maturity date of a 60-day note dated April 12 is:


A. June 10.
B. June 11.
C. June 12.
D. June 13.

22. The interest rate specified in a note is for a:


A. day.
B. month.
C. week.
D. year.

23. For an interest-bearing note, the amount due at maturity is the:


A. face value of the note.
B. face value of the note plus interest.
C. maturity value plus interest.
D. cash (net) realizable value.

24. The entry to record the dishonor of a note receivable assuming the payee
expects eventual collection includes a debit to:
A. Notes Receivable.
B. Cash.
C. Allowance for Doubtful Accounts.
D. Accounts Receivable.

25. The accounts receivable turnover ratio is computed by dividing:


A. total sales by average net accounts receivable.
B. net credit sales by average net accounts receivable.

C. total sales by ending net accounts receivable.


D. net credit sales by ending net accounts receivable.

26. The balance of the Allowance for Doubtful Accounts account at January1 of
the current year was $6,800. During the year, accounts receivable in the
amount of $9,000 were written off. Estimated uncollectible accounts expense
for the year amounts to $7,200. The balance of the Allowance for Doubtful
Accounts account to be reported on the balance sheet at year-end is:
A. $14,000.
B. $7,200.
C. $8,600.
D. $5,000.
This response is incorrect as it computes the year-end balance as Beginning
Balance for Allowance for Doubtful Accounts ($6,800) + Current Year Writeoffs ($9,000) - Current Year Estimated Uncollectible Accounts Expense
($7,200). The correct response is computed as follows: Ending Balance for
Allowance for Doubtful Accounts = Beginning Balance for Allowance for
Doubtful Accounts ($6,800 credit) Current Year Write-offs ($9,000 debit) +
Current Year Estimated Uncollectible Accounts Expense ($7,200 credit)
(Recording Estimated Uncollectibles and Recording the Write-Off of an
Uncollectible Account).

27. Bond Company recorded bad debts expense of $35,000 and wrote-off
accounts receivable of $20,000 during the current year. The net effect of these
two transactions on net income was
A. a decrease of $55,000.
B. a decrease of $35,000.
C. a decrease of $20,000.
D. no effect.
This response is incorrect as it assumes that both transactions affected net
income. As shown by the debit/credit analysis of both transactions, this is not
true. The journal entries for these two transactions are as follows: Recording
of Bad Debts Expense - Bad Debts Expense, $35,000 debit and Allowance for
Doubtful Accounts, $35,000 credit and Recording of Write-Offs Allowance
for Doubtful Accounts, $20,000 Debit and Accounts Receivable, $20,000
credit. The only entry that affects net income is the Recording of Bad Debts
Expense debit to Bad Debts Expense as it is an expense and the other

accounts (assets and contra-assets) affect the balance sheet. The debit to the
expense increases the expense account which in turn, decreases net income
(Recording Estimated Uncollectibles and Recording the Write-Off of an
Uncollectible Account).

28. Sanders Company has a debit balance of $7,000 in its Allowance for Doubtful
Accounts before any adjustments are made. Based on a review of its accounts
receivable at the end of the year, Sanders estimates that $70,000 of its
receivables are uncollectible. The amount of bad debts expense which should
be reported for the year is:
A. $7,000.
B. $77,000.
C. $70,000.
D. $63,000.
This response is incorrect as it makes adjustment for the estimated
uncollectible receivables based on the allowance account having a credit
balance ($70,000 - $7,000). The amount of the bad debt adjusting entry is
normally the difference between the required balance and the existing balance
in the allowance account, if the allowance account has a credit balance. If the
company has a debit balance in the allowance account, it adds the debit
balance to the required balance when it makes the adjusting entry ($7,000 +
$70,000) (Valuing Accounts Receivable Percentage-of-Receivables).

29. On May 1, Kingston Company received a $6,000, 10%, four-month note


receivable. The cash to be received by Kingston Company when the note
becomes due is
A. $200.
B. $6,000.
C. $6,200.
D. $6,600.

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