Accounting III - Chapter 7 Objective Questions

True/False
Indicate whether the statement is true or false.

____ 1. Crediting the estimated value of uncollectible accounts to a contra account is known as the allowance method
of recording losses from uncollectible accounts.
____ 2. The number of times the average amount of accounts receivable is collected during a specified period is
known as the accounts receivable turnover ratio.
____ 3. When a sale is made on account, the amount is recorded in Accounts Receivable. The amount remains in
Accounts Receivable until the amount is paid or until it becomes uncollectible.
____ 4. The accounts receivable turnover ratio equals net sales on account divided by the ending book value of
accounts receivable.
____ 5. The percentage of accounts receivable method estimates a percentage of accounts receivable that will not be
collected and updates the balance of Allowance for Uncollectible Accounts so that it equals the estimated
amount.
____ 6. Collection of Uncollectible Accounts is an other revenue account used to record amounts collected after
write-off under the direct write-off method.
____ 7. The book value of accounts receivable equals the total of Accounts Receivable plus Allowance for
Uncollectible Accounts.
____ 8. Using the allowance method, the estimated amount that will become uncollectible is recorded as an adjusting
entry at the end of the fiscal period.
____ 9. If customers do not pay promptly, a business may run out of cash needed to pay operating expenses.
____ 10. Since uncollectible accounts can cause losses to a business, most businesses should avoid offering credit
terms to new customers.
____ 11. A credit balance in Allowance for Uncollectible Accounts before the adjusting entry is posted means that the
aging of accounts receivable has not identified all the uncollectible accounts for the current year.
____ 12. If the average number of days for payment increases from 29 to 32, the trend is positive.
____ 13. The direct write-off method reduces the account receivable to zero by debiting Allowance for Uncollectible
Accounts and crediting Accounts Receivable.
____ 14. When a customer's account is written off, its balance is reduced to zero.
____ 15. The estimated amount of uncollectible accounts using the allowance method is charged to Estimated
Uncollectible Accounts Expense.
____ 16. From experience, businesses know that the longer an account is outstanding, the less likely it is to be
collected.
____ 17. Recording uncollectible accounts expense at the time the amount is actually known to be uncollectible is
called the allowance method of recording losses from uncollectible accounts.
____ 18. The larger the accounts receivable turnover ratio, the fewer the average number of days for payment.
____ 19. Using the direct write-off method, no attempt is made to collect accounts that have been written off because
the account no longer appears in the accounting records of the business.
____ 20. Morton, Inc. estimates that 1% of its net sales will become uncollectible. The adjustment is made by debiting
Uncollectible Accounts Expense and crediting Accounts Receivable.
____ 21. An accounts receivable turnover ratio that increases from 6.5 to 7.5 is a positive trend.
____ 22. When customers receive notices that their accounts have been written off, they no longer owe on the account
receivable.
____ 23. If a business carefully checks credit ratings before granting credit to customers, the business will not
experience any uncollectible accounts.
____ 24. When collection is made on an account that has been written off, two journal entries are made. One reopens
the customer's account, and the other records the receipt of cash.
____ 25. Applying the matching expenses with revenues concept, uncollectible accounts expense should be recorded in
the same fiscal period in which the sales revenue is received.
____ 26. The difference between the balance of Accounts Receivable and its contra account, Allowance for
Uncollectible Accounts, is known as the book value of accounts receivable.
____ 27. Two methods used to estimate uncollectible accounts expense are the percentage of sales method and the
percentage of uncollectible accounts receivable method.
____ 28. The accounts receivable turnover ratio is a measure of collection efficiency.
____ 29. Canceling the balance of a customer account because the customer is not expected to pay is known as writing
off an account.
____ 30. Analyzing accounts receivable according to when they are due is known as aging net sales.
____ 31. The Going Concern accounting concept is being applied when a business expects to make money and
continue in business indefinitely.
____ 32. Uncollectible accounts are sometimes referred to as bad debts.
____ 33. When a sale on account is made, the amount is recorded in Allowance for Uncollectible Accounts.
____ 34. Regardless of the care taken in granting credit, some customers will not pay the amounts owed.
____ 35. Most businesses today sell on credit to some customers.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 36. The first step in recording the collection of an account that has been written off is to ____.
a. reopen the account receivable
b. debit Collection of Uncollectible Accounts
c. record the cash received
d. reduce the amount of Allowance for Uncollectible Accounts
____ 37. Holt Co. has terms of 2/10, n/30. Its accounts receivable turnover ratio is 10.3. The average number of days
for payment is (rounded to the nearest day) ____.
a. 35 days c. 34 days
b. 36 days d. 30 days
____ 38. Schoff and Co. had $400,000.00 in net sales for the year. Its adjusting entry for estimated uncollectible
accounts expense was $2,000.00. What is the percentage of net sales that is estimated to become
uncollectible?
 a. 0.5% c. 5%
b. 2% d. 10%
____ 39. The beginning book value of accounts receivable is $40,000. The ending book value of accounts receivable is
$60,000. The average book value of accounts receivable is ____.
a. $40,000 c. $60,000
b. $50,000 d. $100,000
____ 40. Brawley Contractors wrote off the past-due account of Sally Williams, $700.00. Using the direct write-off
method, the entry in the general journal includes ____.
a. a debit to Accounts Receivable and a credit to Uncollectible Accounts Expense
b. a debit to Accounts Receivable and a credit to Allowance for Uncollectible Accounts
c. a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable
d. a debit to Uncollectible Accounts Expense and a credit to Allowance for Uncollectible
Accounts
____ 41. The adjusting entry to record the estimated uncollectible accounts expense using the percentage of sales
method is ____.
a. a debit to Uncollectible Accounts Expense and a credit to Allowance for Uncollectible
Accounts
b. a debit to Allowance for Uncollectible Accounts and a credit to Uncollectible Accounts
Expense
c. a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable
d. a debit to Allowance for Uncollectible Accounts and a credit to Income Summary
____ 42. The collection of a written off account involves entries in what two journals?
a. accounts receivable and general c. cash receipts and general
b. cash payments and general d. general and uncollectible accounts
____ 43. A company's average number of days for payment is 48. Its accounts receivable turnover ratio (rounded to the
nearest 0.1) is ____.
a. 7.0 c. 7.5
b. 7.4 d. 7.6
____ 44. Collection of Uncollectible Accounts is classified in the general ledger as a(n) ____.
a. asset c. other expense
b. contra asset d. other revenue
____ 45. The credit balance in Allowance for Uncollectible Accounts is $41.00. The estimated uncollectible accounts
expense using the percentage of accounts receivable method is $330.00. After the adjusting entry has been
recorded, the balance in Allowance for Uncollectible Accounts will be ____.
a. $371 credit c. $289 credit
b. $330 credit d. $41 credit
____ 46. To write off the account of Ashley, Inc., as uncollectible using the allowance method ____.
a. debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts
b. debit Allowance for Uncollectible Accounts and credit Uncollectible Accounts Expense
c. debit Uncollectible Accounts Expense and credit Accounts Receivable
d. debit Allowance for Uncollectible Accounts and credit Accounts Receivable
____ 47. Using the allowance method, an account is written off ____.
a. as an adjusting entry
b. at the end of the fiscal period
c. when it is thought to be uncollectible
d. in the period the revenue was recorded
____ 48. After an account receivable for $300.00 has been written off using the direct write-off method, the balance of
the customer's account in the accounts receivable ledger will be ____.
a. $0 c. $300 credit
 b. $300 debit d. $600 debit
____ 49. Augustine, Inc. had an accounts receivable turnover ratio of 8.3 last year. Its turnover ratio for the current year
is 8.6. From last year to this year, Augustine's average number of days for payment has ____.
a. increased c. stayed the same
b. decreased d. can't be determined
____ 50. Past experience indicates that approximately 1% of Sweeney, Inc.'s net sales will become uncollectible. If net
sales are $300,000.00, estimated uncollectible accounts expense will be ____.
a. $1,000 c. $30,000
b. $3,000 d. unknown
____ 51. Which of the following is NOT a step that a business might take to improve its accounts receivable turnover
ratio?
a. send statements to account customers more often
b. not sell on account to any customer who has a past-due account
c. encourage more cash sales and fewer sales on account
d. require credit customers to meet a specific accounts receivable turnover ratio
____ 52. The credit balance in Allowance for Uncollectible Accounts is $52.00. The estimated uncollectible accounts
expense using the percentage of net sales method is $425.00. After the adjusting entry has been recorded, the
balance in Allowance for Uncollectible Accounts will be ____.
a. $477 credit c. $373 credit
b. $425 credit d. $52 credit
____ 53. Net sales on account are $300,000. The beginning book value of accounts receivable is $40,000. The ending
book value of accounts receivable is $30,000. The accounts receivable turnover ratio is ____.
a. 7.5 times c. 8.6 times
b. 10 times d. 4.3 times
____ 54. Wardridge Co. received cash in full payment of Alto Co.'s account, previously written off as uncollectible,
$250.00. The account is reopened with ____.
a. a debit to Cash and a credit to Accounts Receivable
b. a debit to Accounts Receivable and a credit to Collection of Uncollectible Accounts
c. a debit to Collection of Uncollectible Accounts and a credit to Accounts Receivable
d. a debit to Cash and a credit to Collection of Uncollectible Accounts
____ 55. Osterhaut, Inc. received cash in full payment of Shirley Matthews' account, previously written off as
uncollectible, $56.50. Using the allowance method, after the entries are made to reopen the account and
record the receipt of cash, the balance of Shirley Matthews' account in the accounts receivable ledger is ____.
a. $56.50 debit c. $0
b. $56.50 credit d. $113.00 debit
____ 56. When a customer account is known to be uncollectible, the amount becomes a(n) ____.
a. asset of the business c. expense of the business
b. liability of the business d. revenue of the business
____ 57. Amounts owed by customers are recorded in a general ledger account titled ____.
a. Accounts Receivable
b. Accounts Payable
c. Allowance for Uncollectible Accounts
d. Customer Accounts Receivable
____ 58. One disadvantage of recording uncollectible accounts using the direct write-off method is that ____.
a. the expense cannot be budgeted
b. the customer will still be granted credit until the account is written off
c. the customer will not know that the account is past due
d. the expense may not be recorded in the same fiscal period as the revenue for the sale
____ 59. Because there is no way of knowing for sure which customer accounts will become uncollectible, an estimate
is made based on ____.
a. past history of uncollectible accounts expense
b. published industry standards
c. Internal Revenue Service guidelines
d. customer responses to surveys
____ 60. When using the allowance method, an uncollectible account is closed by transferring the balance to a general
ledger account titled ____.
a. Uncollectible Accounts Expense
b. Allowance for Uncollectible Accounts
c. Accounts Receivable
d. Accounts Payable
Accounting III - Chapter 7 Objective Questions
Answer Section

TRUE/FALSE

1. ANS: T PTS: 1
2. ANS: T PTS: 1
3. ANS: T PTS: 1
4. ANS: F PTS: 1
5. ANS: T PTS: 1
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MULTIPLE CHOICE

36. ANS: A PTS: 1

37. ANS: A PTS: 1
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40. ANS: C PTS: 1
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